Macroeconomic Uncertainty and Quantitative vs. Qualitative Inputs to Analyst Risk Forecasts

Khrystyna Bochkay, Peter Joos (2020). Macroeconomic Uncertainty and Quantitative vs. Qualitative Inputs to Analyst Risk Forecasts. The Accounting Review, Forthcoming

University of Miami Business School Research Paper No. 3639285

Posted: 14 Jul 2020

See all articles by Khrystyna Bochkay

Khrystyna Bochkay

University of Miami - School of Business Administration

Peter R. Joos

INSEAD

Date Written: June 30, 2020

Abstract

Risk forecasting is crucial for informed investment decision-making. Moreover, the salience of investment risk increases during economically uncertain times. In this paper, we study how sell-side analysts form expectations of firm risk, under different macroeconomic conditions (low versus high uncertainty) and by distinguishing between quantitative and qualitative information inputs. We find that analysts jointly consider quantitative and qualitative information but that their reliance on qualitative information - in particular, disclosure tone - increases when macroeconomic uncertainty is high. We also find that analysts mostly rely on disclosure tone when it contradicts quantitative information. These findings highlight how narrative disclosures can provide context for quantitative information. Finally, we find that analysts' specific use of quantitative/qualitative information improves their forecasts as predictors of firm risk. Together, our results illuminate analysts' risk forecasting process - what information they use and how.

Keywords: analysts' risk forecasts, quantitative and qualitative information, macroeconomic uncertainty

JEL Classification: G01, G11, G20, G24

Suggested Citation

Bochkay, Khrystyna and Joos, Peter R., Macroeconomic Uncertainty and Quantitative vs. Qualitative Inputs to Analyst Risk Forecasts (June 30, 2020). Khrystyna Bochkay, Peter Joos (2020). Macroeconomic Uncertainty and Quantitative vs. Qualitative Inputs to Analyst Risk Forecasts. The Accounting Review, Forthcoming, University of Miami Business School Research Paper No. 3639285, Available at SSRN: https://ssrn.com/abstract=3639285

Khrystyna Bochkay (Contact Author)

University of Miami - School of Business Administration ( email )

Coral Gables, FL 33146-6531
United States

Peter R. Joos

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore

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