Analysts’ Optimism and Stock Crash Risk

Managerial Finance, Forthcoming

39 Pages Posted: 13 Dec 2019

See all articles by Hyunkwon Cho

Hyunkwon Cho

Sungkyunkwan University

Robert Kim

University of Massachusetts Boston

Date Written: November 21, 2019


This paper investigates whether analysts’ optimism affects the stock crash risk. Analysts’ optimism can increase stock crash risk either by inducing overvaluation or by providing managers an opportunity to withhold bad news. Using analysts’ forecast error as a proxy for analysts’ optimism, we find that there is a positive association between analysts’ optimism and stock crash risk. Further, such a positive impact is more pronounced for firms with opaque information environment and for analysts who are considered ex ante credible. In addition, we show that analysts’ optimism does not increase stock crash risk when the prevailing market sentiment is high, lessening the concern that our findings are driven by market overvaluation. Overall, our results indicate that analysts’ optimism can be a source of stock crash risk.

Keywords: analysts’ optimism, stock crash risk, information environment, credibility, market sentiment

JEL Classification: G12, G14

Suggested Citation

Cho, Hyunkwon and Kim, Robert, Analysts’ Optimism and Stock Crash Risk (November 21, 2019). Managerial Finance, Forthcoming, Available at SSRN:

Hyunkwon Cho

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Seoul, 110-745
Korea, Republic of (South Korea)

Robert Kim (Contact Author)

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
College of Management
Boston, MA 02125
United States


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