Investor Learning About Analyst Predictive Ability

38 Pages Posted: 7 Mar 2003

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

Jennifer Francis

Duke University

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Date Written: January 2003

Abstract

Bayesian learning implies decreasing weights on prior beliefs and increasing weights on track records, as the latter become more precise. We test whether investors learn about analyst predictive ability in this manner by examining market reactions to analysts' forecasts. Consistent with investors shifting weight to track records, we find that market reactions to analysts' forecasts of quarterly earnings are increasing in the product of the accuracy and length of analysts' track records. Moreover, we show that the dynamic learning predicted by our model is more descriptive of market reactions to analysts' forecasts than a static model which predicts that investors' responses to forecast revisions condition only on the prior accuracy of the analyst.

Keywords: Analyst, Bayesian Learning

JEL Classification: G14, G24

Suggested Citation

Chen, Qi and Francis, Jennifer and Jiang, Wei, Investor Learning About Analyst Predictive Ability (January 2003). Available at SSRN: https://ssrn.com/abstract=367721 or http://dx.doi.org/10.2139/ssrn.367721

Qi Chen

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7753 (Phone)

Jennifer Francis

Duke University ( email )

220 Allen Building
Durham, NC 27705
United States

Wei Jiang (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
392
Abstract Views
2,712
rank
81,303
PlumX Metrics