Do Investors Recognize Biases in Analysts' Forecasts?

25 Pages Posted: 9 Oct 2019

Date Written: August 12, 2019


This study presents direct evidence on the question whether investors recognize the widely documented biases in securities analysts’ earnings forecasts. The internal rate of return implied by current stock price and consensus earnings forecasts is found to be correlated with indicators of bias in a manner consistent with investors discounting optimistic earnings forecasts at higher rates of return and less optimistic forecasts at lower rates of return. In a departure from studies of excess returns, the evidence in implied returns indicates that investors recognize the biases in analysts’ earnings forecasts.

Keywords: analyst forecast bias, behavioral bias, market efficiency, earnings

JEL Classification: G11, G12, G14, G41

Suggested Citation

Baird, Philip L., Do Investors Recognize Biases in Analysts' Forecasts? (August 12, 2019). Available at SSRN: or

Philip L. Baird (Contact Author)

Duquesne University ( email )

600 Forbes Avenue
Pittsburgh, PA 15282
United States

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