A Re-Examination of Analyst Underreaction
31 Pages Posted: 1 Oct 2003
Date Written: January 2006
Prior studies suggest that analysts underreact to past information (Klein 1990; Abarbanell and Bernard 1992; Easterwood and Nutt 1999). I examine whether this underreaction can be attributed to analyst self-selection. Analyst self-selection arises when analysts' information production efforts focus on stocks that analysts expect to perform well. My study suggests that self-selection is responsible, at least in part, for analyst underreaction to past information about the firm's performance.
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