How do Banking Analysts behave around Unanticipated News? Evidence from Operational Risk Event Announcements

54 Pages Posted: 15 Apr 2020

See all articles by Hurvashee Gya

Hurvashee Gya

Nottingham University Business School

Ahmed Barakat

Nottingham University Business School

Kevin Amess

Nottingham University Business School

Anna Chernobai

Syracuse University - M. J. Whitman School of Management

Date Written: March 22, 2020

Abstract

We study earnings per share (EPS) forecast revision and accuracy of banking analysts around operational risk event announcements in U.S. banks from 1990 to 2016. We find that first announcements of operational risk events are more informative than their settlements announcements to banking analysts. Optimistic banking analysts revise their forecasts downwards more aggressively around operational risk disclosures, thereby improving forecast accuracy. We find consistent evidence linking competition among banking analysts with optimistic and inaccurate forecasts, suggesting that analysts seek to use inflated forecasts to curry favour and attract businesses to their brokerage house around the time of operational risk disclosures. Moreover, banking analysts have become less optimistic and more accurate in their reaction to operational risk disclosures during and following the global financial crisis with no effect of the Global Settlement of 2003. Overall, our results shed light on the determinants of optimism bias in banking analyst behaviour upon the arrival of unanticipated news.

Keywords: Operational risk, unanticipated news, banking analyst, forecast revision and accuracy, career concerns, analyst competition, optimism bias

JEL Classification: G14, G21, G41

Suggested Citation

Gya, Hurvashee and Barakat, Ahmed and Amess, Kevin and Chernobai, Anna, How do Banking Analysts behave around Unanticipated News? Evidence from Operational Risk Event Announcements (March 22, 2020). Available at SSRN: https://ssrn.com/abstract=3558906 or http://dx.doi.org/10.2139/ssrn.3558906

Hurvashee Gya

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Ahmed Barakat (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Kevin Amess

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

HOME PAGE: http://www.nottingham.ac.uk/business/lizka1.html

Anna Chernobai

Syracuse University - M. J. Whitman School of Management ( email )

721 University Ave
Syracuse, NY 13244-2450
United States
(315) 443 3357 (Phone)

HOME PAGE: http://https://sites.google.com/a/g.syr.edu/anna-chernobai/

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