Analyst Forecast Dispersion and Future Stock Return Volatility

Analyst Forecast Dispersion and Future Stock Return Volatility" Quarterly Journal of Business and Economics, Vol. 42, Nos. 1 and 2, Winter/Spring 2003, pp 57-78 .

Posted: 19 Nov 2006

See all articles by Madhu Kalimipalli

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

George Athanassakos

University of Western Ontario - Finance-Economics Area Group

Abstract

In this paper, we examine the relationship between analysts' forecast dispersion and future stock return volatility using monthly data for a cross section of 160 US firms from 1981 to 1996. We find that there is a strong and positive relationship between analysts' forecast dispersion and future return volatility. The dispersion measure has incremental information content even after accounting for market volatility. These results are robust across sub-sample periods and sub-samples based on based on number of analysts following a firm, forecast dispersion and market capitalization. There is also a strong seasonal relationship between the dispersion measure and future volatility. The importance of dispersion on future return volatility is high in January and the first few months of the year, and declines thereafter. Such information content of analysts' earnings forecast dispersion is of great importance for active portfolio management, option pricing and arbitrage trading strategies.

Keywords: dispersion, optimism, stock return volatility, pooled regressions

JEL Classification: G12, G1

Suggested Citation

Kalimipalli, Madhu and Athanassakos, George, Analyst Forecast Dispersion and Future Stock Return Volatility. Available at SSRN: https://ssrn.com/abstract=531722

Madhu Kalimipalli (Contact Author)

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

HOME PAGE: http://www.madhukalimipalli.com/

George Athanassakos

University of Western Ontario - Finance-Economics Area Group ( email )

London, Ontario N6A 5B8
Canada

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