The Influence of Observed Stock Price Changes on Analysts' Earnings Forecast Revisions: Experimental Evidence

40 Pages Posted: 24 Jan 2006

See all articles by Jeffrey S. Miller

Jeffrey S. Miller

University of Notre Dame - Department of Accountancy

Lisa M. Sedor

DePaul University

Date Written: January 6, 2006

Abstract

Prior research demonstrates that the sign and magnitude of analysts' earnings forecast revisions are positively associated with the sign and magnitude of prior security returns. In an experiment, we examine whether observed stock price changes influence analysts' earnings forecast revisions in the context of varying levels of uncertainty about future earnings. We find that analysts' earnings forecast revisions are influenced by observed stock price changes when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Additional analyses provide evidence that the effect of uncertainty about future earnings on analysts' earnings forecast revisions is mediated by analysts' confidence in their forecasts. Results suggest that part of the association between analysts' earnings forecast revisions and prior security returns is likely due to analysts observing stock price changes and incorporating price information, either intentionally or unintentionally, into their forecasts.

Keywords: analysts' earnings forecasts, confidence, forecast revisions, stock prices

JEL Classification: G29, M41, G12

Suggested Citation

Miller, Jeffrey S. and Sedor, Lisa M., The Influence of Observed Stock Price Changes on Analysts' Earnings Forecast Revisions: Experimental Evidence (January 6, 2006). Available at SSRN: https://ssrn.com/abstract=876651 or http://dx.doi.org/10.2139/ssrn.876651

Jeffrey S. Miller

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Lisa M. Sedor (Contact Author)

DePaul University ( email )

Chicago, IL 60604
United States

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