The Extreme Future Stock Returns Following I/B/E/S Earnings Surprises

CFA Digest ◽  
2007 ◽  
Vol 37 (2) ◽  
pp. 42-44
Author(s):  
Keith H. Black
Keyword(s):  
Stock Returns ◽  
Earnings Surprises

scholarly journals The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns

2012 ◽  
Vol 48 (1) ◽  
pp. 47-76 ◽  
Author(s):  
Ling Cen ◽  
Gilles Hilary ◽  
K. C. John Wei
Keyword(s):  
Stock Returns ◽  
Earnings Forecasts ◽  
Equity Market ◽  
Stock Splits ◽  
Forecast Errors ◽  
Forecast Revisions ◽  
Earnings Per Share ◽  
Earnings Surprises ◽  
Anchoring Bias

AbstractWe test the implications of anchoring bias associated with forecast earnings per share (FEPS) for forecast errors, earnings surprises, stock returns, and stock splits. We find that analysts make optimistic (pessimistic) forecasts when a firm’s FEPS is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. These firms are also more likely to engage in stock splits. Finally, split firms experience more positive forecast revisions, more negative forecast errors, and more negative earnings surprises after stock splits.

scholarly journals When Everyone Misses on the Same Side: Debiased Earnings Surprises and Stock Returns

2014 ◽  
Author(s):  
Chin-Han Chiang ◽  
Wei Dai ◽  
Jianqing Fan ◽  
Harrison G. Hong ◽  
Jun Tu
Keyword(s):  
Stock Returns ◽  
Earnings Surprises

The Extreme Future Stock Returns Following I/B/E/S Earnings Surprises

2006 ◽  
Vol 44 (5) ◽  
pp. 849-887 ◽  
Author(s):  
JEFFREY T. DOYLE ◽  
RUSSELL J. LUNDHOLM ◽  
MARK T. SOLIMAN
Keyword(s):  
Stock Returns ◽  
Earnings Surprises

Herding on Earnings News: The Role of Institutional Investors in Post–Earnings-Announcement Drift

2017 ◽  
Vol 32 (4) ◽  
pp. 536-560 ◽  
Author(s):  
Linda H. Chen ◽  
Wei Huang ◽  
George J. Jiang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Stock Prices ◽  
Institutional Trading ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Gradual Process ◽  
Earnings Surprises ◽  
Institutional Herding

We examine the role of institutional investors underlying post–earnings-announcement drift (PEAD). Our results show that while institutional investors generally herd on earnings news, such correlated trading among institutions does not eliminate or reduce market underreaction to earnings surprises. Instead, PEAD is significant only in the subsample of stocks where institutions herd in the same direction as earnings surprises. In fact, institutional herding is also positively related to next-quarter earnings announcement returns. We provide evidence that institutional herding on or against earnings news is largely driven by firm characteristics, particularly past firm performance and stock returns. In addition, we find that relative to nontransient institutions, transient institutions have a stronger tendency to herd on earnings information. Finally, based on long-run stock returns, we show that when institutions herd on earnings surprises, institutional trading represents a gradual process of incorporating information into stock prices. However, when institutions herd against earnings surprises, institutional trading slows down stock price discovery.

scholarly journals The Earnings Expectations Game and the Dispersion Anomaly

2021 ◽  
Author(s):  
David Veenman ◽  
Patrick Verwijmeren
Keyword(s):  
Stock Returns ◽  
Return Predictability ◽  
Analyst Forecast ◽  
Forecast Dispersion ◽  
Earnings Expectations ◽  
Negative Relation ◽  
Earnings Surprises ◽  
Ex Ante ◽  
New Evidence

This study examines the role of differences in firms’ propensity to meet earnings expectations in explaining why firms with high analyst forecast dispersion experience relatively low future stock returns. We first demonstrate that the negative relation between dispersion and returns is concentrated around earnings announcements. Next, we show that this relation disappears when we control for ex ante measures of firms’ propensity to meet earnings expectations and that the component of dispersion explained by these measures drives the return predictability of dispersion. We further demonstrate that firms with low analyst dispersion are substantially more likely to achieve positive earnings surprises and provide new evidence consistent with both expectations management and strategic forecast pessimism explaining this result. Overall, we conclude that investor mispricing of firms’ participation in the earnings-expectations game provides a viable explanation for the dispersion anomaly. Accepted by Brian Bushee, accounting.

Do Investors Fully Unravel Persistent Pessimism in Analysts' Earnings Forecasts?

2017 ◽  
Vol 93 (3) ◽  
pp. 349-377 ◽  
Author(s):  
David Veenman ◽  
Patrick Verwijmeren
Keyword(s):  
Stock Returns ◽  
Earnings Forecasts ◽  
Analyst Forecast ◽  
Short Term ◽  
Market Prices ◽  
Earnings Expectations ◽  
Earnings Surprises ◽  
Announcement Returns ◽  
Low Probability ◽  
Jel Classifications

ABSTRACT This study presents evidence suggesting that investors do not fully unravel predictable pessimism in sell-side analysts' earnings forecasts. We show that measures of prior consensus and individual analyst forecast pessimism are predictive of both the sign of firms' earnings surprises and the stock returns around earnings announcements. That is, we find that firms with a relatively high probability of forecast pessimism experience significantly higher announcement returns than those with a low probability. Importantly, we show that these findings are driven by predictable pessimism in analysts' short-term forecasts, as opposed to optimism in their longer-term forecasts. We further find that this mispricing is related to the difficulty investors have in identifying differences in expected forecast pessimism. Overall, we conclude that market prices do not fully reflect the conditional probability that a firm meets or beats earnings expectations as a result of analysts' pessimistically biased short-term forecasts. JEL Classifications: G12; G14; G20.

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