Heuristics of Representativeness, Anchoring and Adjustment, and Leniency: Impact on Earnings' Forecasts By Australian Analysts

38 Pages Posted: 27 Jun 2007

See all articles by Alastair Marsden

Alastair Marsden

University of Auckland - Business School

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Min Ye

University of Auckland

Date Written: June 2007

Abstract

This paper investigates analysts' earnings forecasts for equities listed on the Australian Stock Exchange. Recent research shows that heuristics may influence analysts' decision making (see, Amir and Ganzach 1998), however, most of the evidence is limited to US and European markets. We provide further international evidence by examining the power of representativeness, anchoring and adjustment, and leniency heuristics on analysts' forecast errors using Australian data.

Our findings show that analysts in Australia make forecasts optimistically - supporting the leniency hypothesis. We also find that analysts tend to overreact when forecast revisions and changes are positive and underreact when forecast revisions and changes are negative.

Keywords: analyst forecasts, earnings revisions, forecast revisions, forecast changes

JEL Classification: G14, G29

Suggested Citation

Marsden, Alastair D.E. and Veeraraghavan, Madhu and Ye, Min, Heuristics of Representativeness, Anchoring and Adjustment, and Leniency: Impact on Earnings' Forecasts By Australian Analysts (June 2007). Available at SSRN: https://ssrn.com/abstract=996514 or http://dx.doi.org/10.2139/ssrn.996514

Alastair D.E. Marsden

University of Auckland - Business School ( email )

Private Bag 92019
Room: C208
Auckland
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Madhu Veeraraghavan (Contact Author)

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Min Ye

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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