Contrast Effects: The Phantom of an Analyst's Latest Earnings Forecasts

66 Pages Posted: 19 Sep 2022 Last revised: 26 Apr 2024

See all articles by Huan Cai

Huan Cai

Cornell College

Xiaodi Zhang

Shanghai University of Finance and Economics

Jie Zheng

Shandong University - Center for Economic Research

Date Written: April 21, 2024

Abstract

Psychology research on contrast effects suggests that information from a previous decision may be compared with the information of the current task. We document a new stylized fact that an analyst’s current annual earnings forecast of one firm is negatively correlated with her latest forecast revision of another firm. We show that such contrast effects persist in subsamples of different information environments. In addition, the contrast effects are stronger when the latest forecast revision of another firm is negative, when the two subsequent forecasts have a closer temporal distance, or when the two forecast firms are more related.

Keywords: Contrast Effects, Analysts, Earnings Forecasts, Cognitive Biases, Behavioral Finance.

JEL Classification: G02, G14, G24, G41

Suggested Citation

Cai, Huan and Zhang, Xiaodi and Zheng, Jie, Contrast Effects: The Phantom of an Analyst's Latest Earnings Forecasts (April 21, 2024). Available at SSRN: https://ssrn.com/abstract=4211699 or http://dx.doi.org/10.2139/ssrn.4211699

Huan Cai

Cornell College ( email )

United States

Xiaodi Zhang

Shanghai University of Finance and Economics ( email )

School of Finance
Shanghai
China

Jie Zheng (Contact Author)

Shandong University - Center for Economic Research ( email )

Jinan, Shandong 250100
China

HOME PAGE: http://https://meetecon.com/jie/

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