Analyst Disagreement, Forecast Bias and Stock Returns

48 Pages Posted: 5 Apr 2006

Date Written: June 2004


We present evidence of inefficient information processing in equity markets by documenting that biases in analysts' earnings forecasts are reflected in stock prices. In particular, we show that investors fail to fully account for optimistic bias associated with analyst disagreement. This bias arises for two reasons. First, analysts issue more optimistic forecasts when earnings are uncertain. Second, analysts with sufficiently low earnings expectations who choose to keep quiet introduce an optimistic bias in the mean reported forecast that is increasing in the underlying disagreement. Indicators of the missing negative opinions predict earnings surprises and stock returns. By selling stocks with high analyst disagreement institutions exert correcting pressure on prices.

Keywords: analyst disagreement, earnings momentum, forecast bias, missing forecasts

JEL Classification: G12, G14, G24

Suggested Citation

Scherbina, Anna D., Analyst Disagreement, Forecast Bias and Stock Returns (June 2004). HBS Publishing, Forthcoming, Available at SSRN: or

Anna D. Scherbina (Contact Author)

Brandeis University ( email )

415 South Street
Waltham, MA 02453
United States


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