Analyst Forecasts and the Cross-Section of European Stock Returns

Posted: 4 Oct 2005

See all articles by Steven K. Todd

Steven K. Todd

Loyola University of Chicago

Phillip J. McKnight

University of St. Andrews - School of Management

Multiple version iconThere are 2 versions of this paper

Abstract

We examine revisions to earnings forecasts by equity analysts and their role in predicting stock returns. We provide evidence that European stocks with net upward revised forecasts earn higher future returns than otherwise similar stocks. This effect is not concentrated in small stocks, stocks with low analyst coverage, or stocks with low book-to-market ratios. We find differences in the return continuation patterns of stocks with upward versus downward revisions, namely, bad news travels quickly, but good news travels slowly. This result is consistent with investors' attaching greater significance to poor earnings forecasts, but adopting a wait-and-see approach to good news.

Keywords: Trading strategy, momentum, equity analysts, earnings forecasts

JEL Classification: G12, G14

Suggested Citation

Todd, Steven K. and McKnight, Phillip J., Analyst Forecasts and the Cross-Section of European Stock Returns. Financial Markets, Institutions, and Instruments, 2006, Available at SSRN: https://ssrn.com/abstract=811187

Steven K. Todd (Contact Author)

Loyola University of Chicago ( email )

820 North Michigan Avenue
Chicago, IL 60611
United States
(312) 915-7218 (Phone)
(312) 915-8508 (Fax)

Phillip J. McKnight

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,073
PlumX Metrics