Analyst Forecast Revisions and Market Price Discovery

2003 ◽  
Vol 78 (1) ◽  
pp. 193-225 ◽  
Author(s):  
Cristi A. Gleason ◽  
Charles M. C. Lee
Keyword(s):  
Price Discovery ◽  
Market Price ◽  
Price Adjustment ◽  
Adjustment Process ◽  
Analyst Forecast ◽  
Wall Street ◽  
Cross Sectional ◽  
Analyst Coverage ◽  
Forecast Revisions ◽  
New Information

We document several factors that help explain cross-sectional variations in the post-revision price drift associated with analyst forecast revisions. First, the market does not make a sufficient distinction between revisions that provide new information (“high-innovation” revisions) and revisions that merely move toward the consensus (“low-innovation” revisions). Second, the price adjustment process is faster and more complete for “celebrity” analysts (Institutional Investor All-Stars) than for more obscure yet highly accurate analysts (Wall Street Journal Earnings-Estimators). Third, controlling for other factors, the price adjustment process is faster and more complete for firms with greater analyst coverage. Finally, a substantial portion of the delayed price adjustment occurs around subsequent earnings-announcement and forecast-revision dates. Collectively, these findings show that more subtle aspects of an earnings revision signal can hinder the efficacy of market price discovery, particularly in firms with relatively low analyst coverage, and that subsequent earnings-related news events serve as catalysts in the price discovery process.

scholarly journals Returns to buying upward revision and selling downward revision stocks

2016 ◽  
Vol 42 (11) ◽  
pp. 1110-1124
Author(s):  
Tony Chieh-Tse Hou ◽  
Phillip McKnight ◽  
Charlie Weir
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Information Diffusion ◽  
Trading Strategy ◽  
Good News ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Content Type ◽  
Forecast Revisions ◽  
New Information

Purpose The purpose of this paper is to investigate the role of earnings forecast revisions by equity analysts in predicting Canadian stock returns Design/methodology/approach The sample covers 420 Canadian firms over the period 1998-2009. It analyses investors’ reactions to 27,271 upward revisions and 32,005 downward revisions of analysts’ forecasts for Canadian quoted companies. To test whether analysts’ earnings forecast revisions affect stock return continuation, forecast revision portfolios similar to Jegadeesh and Titman (2001) are constructed. The paper analyses the returns gained from a trading strategy based on buying the strong upward revisions portfolio and short selling the strong downward revisions portfolio. It also separates the sample into upward and downward revisions. Findings The authors find that new information in the form of analyst forecast revisions is not impounded efficiently into stock prices. Significant returns persist for a trading strategy that buys stocks with recent upward revisions and short sells stocks with recent downward revisions. Good news is impounded into stock prices more slowly than bad news. Post-earnings forecast revisions drift is negatively related to analyst coverage. The effect is strongest for stocks with greatest number of upward revisions. The introduction of the better disclosure standards has made the Canadian stock market more efficient. Originality/value The paper adds to the limited evidence on the effect of analyst forecast revisions on the returns of Canadian stocks. It sheds light on the importance of analysts’ earnings forecast information and offers support for the investor conservatism and information diffusion hypotheses. It also shows how policy can improve market efficiency.

scholarly journals Active Funds and Bundled News

2021 ◽  
Author(s):  
Charles M. C. Lee ◽  
Christina Zhu
Keyword(s):  
Price Discovery ◽  
Market Price ◽  
Earnings Announcements ◽  
Price Adjustment ◽  
Level Data ◽  
Managed Funds

We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. We find AMFs are drawn to, and participate disproportionately more in, earnings announcements (EAs) that include bundled managerial guidance. When the two pieces of news are directionally inconsistent, AMFs trade in the direction of future guidance rather than current earnings. AMFs exhibit an ability to discern, and adapt their trading to, the bias in bundled guidance. While AMF trades at EAs are generally more profitable than their non-EA trades, this result reverses when guidance bias is extreme. Overall, we find increased AMF trading during EAs leads to faster price adjustment. Collectively, these findings suggest AMFs are sophisticated processors of bundled earnings news, and their trading generally improves market price discovery.

The Effect of Analyst Forecasts during Earnings Announcements on Investor Responses to Reported Earnings

2016 ◽  
Vol 92 (3) ◽  
pp. 239-263 ◽  
Author(s):  
Gerald J. Lobo ◽  
Minsup Song ◽  
Mary Harris Stanford
Keyword(s):  
Negative Impact ◽  
Earnings Announcements ◽  
Analyst Forecasts ◽  
Analyst Forecast ◽  
Management Forecasts ◽  
Cross Sectional ◽  
Earnings Response Coefficients ◽  
Forecast Revisions ◽  
Unexpected Earnings ◽  
Earnings Response

ABSTRACT Despite the increased frequency of analyst forecasts during earnings announcements, empirical evidence on the interaction between the information in the earnings announcement and these forecasts is limited. We examine the implications of reinforcing and contradicting analyst forecast revisions issued during earnings announcements (days 0 and +1) on the market response to unexpected earnings. We classify forecast revisions as reinforcing (contradicting) when the sign of analyst forecast revisions agrees (disagrees) with the sign of unexpected earnings. We document larger (smaller) earnings response coefficients for announcements accompanied by reinforcing (contradicting) analyst forecast revisions. Analyses of management forecasts suggest that analyst revisions and management forecasts convey complementary information. Cross-sectional tests show that investors react more to earnings announcements accompanied by analyst forecast revisions when there is greater consensus among analysts (lower dispersion) and that better earnings quality (higher persistence) mitigates the negative impact of contradictory analyst forecast revisions. JEL Classifications: D82; G29; M41.

RAILROAD INVESTING AND THE IMPORTANCE OF FINANCIAL ACCOUNTING INFORMATION IN 1880s AMERICA

2013 ◽  
Vol 40 (2) ◽  
pp. 55-89 ◽  
Author(s):  
Joel E. Thompson
Keyword(s):  
United States ◽  
Information Sources ◽  
Accounting Information ◽  
The United States ◽  
Financial Accounting ◽  
Wall Street ◽  
New Information ◽  
Other Information ◽  
Comprehensive Search ◽  
The Wall Street Journal

This study has a two-fold purpose. First, it seeks to determine the importance of financial accounting information to railroad investors (and speculators) in 1880s America. Second, a further goal is to ascertain what financial accounting information was readily available for use by these investors. Based on a comprehensive search of books of the era, the 1880s were a time of expanding advice for railroad securities holders that required the use of financial accounting information. Furthermore, new information sources arose to help service investors' needs. Statistics by Goodsell and The Wall Street Journal were two such sources. This article reviews these publications along with the ongoing Commercial and Financial Chronicle and Poor's Manual of the Railroads of the United States. Each of these sources helped railroad investors to follow contemporary advice of gathering financial accounting and other information when investing.

Information Technology Capability, Management Forecast Accuracy, and Analyst Forecast Revisions

2018 ◽  
Vol 32 (3) ◽  
pp. 49-70 ◽  
Author(s):  
Feiqi Huang ◽  
He Li ◽  
Tawei Wang
Keyword(s):  
Forecast Accuracy ◽  
Analyst Forecast ◽  
Management Forecasts ◽  
Forecast Revisions ◽  
It Capability ◽  
Management Forecast ◽  
Prior Literature ◽  
Technology Capability ◽  
Information Technology Capability ◽  
The Relationship

SYNOPSISPrior literature has firmly established the relationship between IT capability and firm performance. In this paper, we extend the research in this field and investigate (1) whether IT capability contributes to management forecast accuracy, and (2) whether IT capability improves the informativeness of management forecasts and enhances the extent to which analysts incorporate management forecasts in their revisions. Using firms listed on InformationWeek 500 as our high IT capability group, we empirically demonstrate that firms with high IT capability are able to increase management forecast accuracy, and that analysts incorporate more information from management forecasts in their revisions if the firm has high IT capability.

A price adjustment process in a rationed economy

1994 ◽  
Vol 23 (4) ◽  
pp. 305-321 ◽  
Author(s):  
Solomon M. Movshovich
Keyword(s):  
Price Adjustment ◽  
Adjustment Process

Role Strain, Coping, and Marital Satisfaction of Stepparents

1992 ◽  
Vol 73 (2) ◽  
pp. 79-92 ◽  
Author(s):  
Doni Whitsett ◽  
Helen Land
Keyword(s):  
Marital Satisfaction ◽  
Inverse Relationship ◽  
Role Strain ◽  
Self Esteem ◽  
Coping Resources ◽  
Cross Sectional ◽  
New Information ◽  
Study Results ◽  
And Coping ◽  
The Relationship

The relationship among role strain, coping, and marital satisfaction is examined in a cross-sectional sample of 73 stepparents. New information is discussed pertaining to differential types of role strain identified in stepparent groups. The association between types of role strain and differential types of coping strategies and coping resources is analyzed. Results document the association between coping resources of self-esteem and self-efficacy and certain dimensions of role strain. An inverse relationship between role strain and marital satisfaction is noted. Based on study results, the authors identify vulnerable subgroups and suggest implications for practice with stepfamilies.

Analyst forecast revisions and asset allocation in Asia-Pacific markets

2002 ◽  
Vol 12 (4-5) ◽  
pp. 391-409 ◽  
Author(s):  
Millicent Chang ◽  
Isabel Dallas ◽  
Juliana Ng
Keyword(s):  
Asset Allocation ◽  
Asia Pacific ◽  
Analyst Forecast ◽  
Forecast Revisions
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