Market Demand for Conservative Analysts

42 Pages Posted: 30 Jan 2007 Last revised: 15 Jun 2010

See all articles by Artur Hugon

Artur Hugon

Arizona State University (ASU)

Volkan Muslu

C.T. Bauer College of Business University of Houston

Date Written: January 19, 2010


Sell-side analysts, on balance, have incentives to emphasize good company news and downplay the bad, resulting in inefficient forecasts. We conjecture that this behavior generates a demand for forecasts from conservative analysts who unwind this pattern, at least in part, resulting in more efficient forecasts. To investigate, we introduce a measure of analyst conservatism and assess the market reaction to analysts’ forecast revisions conditioned on their past levels of conservatism. We find a stronger market reaction to forecast revisions by more conservative analysts, and that this result is heightened for companies with greater institutional investor following.

Keywords: Analysts, Conservatism, Earnings forecasts, Market reaction

JEL Classification: G14, G24, G29, M41

Suggested Citation

Hugon, Artur and Muslu, Volkan, Market Demand for Conservative Analysts (January 19, 2010). Journal of Accounting & Economics (JAE), Vol. 50, pp. 42-57. Available at SSRN:

Artur Hugon (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Volkan Muslu

C.T. Bauer College of Business University of Houston ( email )

4750 Calhoun Road
Houston, TX 77204
United States
713 7434924 (Phone)

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