Information Uncertainty and Analyst Forecast Behavior
41 Pages Posted: 19 Jul 2005
Date Written: June 2005
Prior literature observes that information uncertainty exacerbates investor underreaction behavior. In this paper, I investigate whether, as professional investment intermediaries, sell-side analysts suffer more behavioral biases in cases of greater information uncertainty. I show that greater information uncertainty predicts more positive (negative) forecast errors and subsequent forecast revisions following good (bad) news, which corroborates previous findings on the post-analyst-revision drift. The opposite effects of information uncertainty on forecast errors and subsequent forecast revisions following good vs. bad news support the analyst underreaction hypothesis and are inconsistent with analyst forecast rationality or optimism suggested in prior literature.
Keywords: Analyst forecasts error, forecast revision, information uncertainty, underreaction
JEL Classification: G14
Suggested Citation: Suggested Citation