Timeliness of Analysts' Forecasts: the Informational Role of Follower Analysts

42 Pages Posted: 2 Oct 2005

See all articles by Pervin K. Shroff

Pervin K. Shroff

University of Minnesota - Twin Cities - Carlson School of Management

Ramgopal Venkataraman

University of Texas at Arlington

Baohua Xin

University of Toronto - Rotman School of Management

Date Written: August 2005

Abstract

A significant percentage of firms today are followed by numerous security analysts. In this paper, we attempt to understand the informational role played by analysts when multiple analysts follow a specific firm. We classify analysts as leaders and followers based on the relative timeliness of their earnings forecasts. Our focus is on follower (or less timely) analysts whose role on surface appears to be superfluous, given that their forecasts lag those of analyst leaders. We examine whether follower analysts add value as financial intermediaries and inquire into the source of the "value added". Our empirical analysis reveals several interesting observations: (i) the "news" in forecasts issued by follower analysts has a significant impact on trading volume and stock price; (ii) the impact of forecast news on both trading volume and stock price, although significant, dissipates with successive follower analysts; (iii) the news in forecasts issued by the least timely analyst also conveys incremental information to the market; (iv) follower analysts incorporate information from both public and private sources in their forecasts and their private information generates consistently significant price impact; (v) analyst followers add value by issuing more accurate forecasts than leaders who appear to trade off accuracy for timeliness; (vi) a multivariate analysis reveals that, compared to leaders, followers follow more firms and issue more frequent forecasts for a firm, but forecast fewer horizons (one-quarter ahead, two-quarters ahead, etc.) and a smaller number of dimensions (cash flow, sales, etc.). Further, compared to leaders, followers have less experience and a smaller percentage of them belong to large brokerage firms. Overall, we conclude that analyst leaders and followers can be viewed as complementary market participants: while some analysts provide timely information to the market, others deliver more accurate reports but with some time delay.

JEL Classification: G29, D82

Suggested Citation

Shroff, Pervin K. and Venkataraman, Ramgopal and Xin, Baohua, Timeliness of Analysts' Forecasts: the Informational Role of Follower Analysts (August 2005). AAA 2006 Financial Accounting and Reporting Section (FARS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=817306 or http://dx.doi.org/10.2139/ssrn.817306

Pervin K. Shroff

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-626-1570 (Fax)

Ramgopal Venkataraman (Contact Author)

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

Baohua Xin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
93
Abstract Views
627
PlumX Metrics