Analyst Forecast Revisions and Market Price Discovery

Posted: 17 Apr 2003

See all articles by Cristi A. Gleason

Cristi A. Gleason

University of Iowa - Department of Accounting

Charles M.C. Lee

Stanford University - Graduate School of Business

Abstract

We document several factors that help explain cross-sectional variations in the post-revision price drift associated with analyst forecast revisions. First, the market does not make a sufficient distinction between revisions that provide new information ("high-innovation" revisions) and revisions that merely move toward the consensus ("low-innovation" revisions). Second, the price adjustment process is faster and more complete for "celebrity" analysts (Institutional Investor All-Stars) than for more obscure yet highly accurate analysts (Wall Street Journal Earnings-Estimators). Third, controlling for other factors, the price adjustment process is faster and more complete for firms with greater analyst coverage. Finally, a substantial portion of the delayed price adjustment occurs around subsequent earnings-announcement and forecast-revision dates. Collectively, these findings show that more subtle aspects of an earnings revision signal can hinder the efficacy of market price discovery, particularly in firms with relatively low analyst coverage, and that subsequent earnings-related news events serve as catalysts in the price discovery process.

Keywords: analysts, forecasts, revisions, market efficiency, earnings quality

JEL Classification: G14, G29, M41

Suggested Citation

Gleason, Cristi A. and Lee, Charles M.C., Analyst Forecast Revisions and Market Price Discovery. The Accounting Review, January 2003. Available at SSRN: https://ssrn.com/abstract=370425

Cristi A. Gleason (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Charles M.C. Lee

Stanford University - Graduate School of Business ( email )

Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

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