Analyst Bibliography


Akhigbe, A (U Akron), Madura, J (Florida Atlantic University), Newman, M (U Akron) (2006), Industry Effects of Analyst Stock Revisions – Journal of Financial Research

We examine the industry valuation effects of analyst stock revisions and identify the variables that influence these effects. Our results show that industry rivals experience significant abnormal returns in response to revision announcements. Although the mean stock price response suggests contagion effects, there is also evidence of significant competitive effects. The valuation effects are influenced by the magnitude of the rated firm’s announcement return, along with analyst-specific and industry-specific characteristics. However, the sensitivity of the valuation effects to these characteristics is conditioned on whether the industry effects are contagious or competitive.

Altinkilic, O., and Hansen R. (2009) On the information role of stock recommendation revisions. Journal of Financial Economics, 48: 17-36.

We examine the information transmission role of stock recommendation revisions by sell-side security analysts. Revisions are associated with economically insignificant mean price reactions and often piggyback on recent news, events, long-term momentum, and short-run contrarian return predictors, typically downgrading after bad news and upgrading after good news. However, the revisions are usually information-free for investors. The findings go against the long-standing view that recommendations are an important means by which analysts assimilate information into stock prices. They disagree with the view of policymakers that analysts’ stock picks materially impact stock prices.

Bagnoli (Purdue), Levine, Stan (QED), Watts, S (Purdue) (2005) – Analyst Estimate Revision Clusters and Corporate Events, Part I and Part II – Annals of Finance

Part I:

This paper uses periods of unusually heavy earnings estimate revision activity by analysts to assess the relative usefulness of corporate information events (CIEs) in firm valuation. Because accounting information is more readily available, newsworthy and accessible, we hypothesize that CIEs that focus on financial statement information trigger greater analyst revision activity over a shorter period of time than CIEs that offer strategic or “soft” information. Our results are consistent with this hypothesis. In Part II, we examine investor response to revision clusters that accompany different CIEs.

Part II:

In Part I of this study, we evaluated the relative usefulness of information in alternative corporate information events (CIEs) to analysts by examining the frequency with which they trigger clusters of analysts’ earnings estimate revisions. In Part II, we examine investor response to various CIEs and their revision clusters. We find that stock prices react most strongly and adjust most quickly to revision clusters that accompany CIEs that focus on financial statement information. CIEs that offer strategic information take longer for analysts and investors to assimilate, and investors appear to rely heavily on later analyst revisions following such events.

Bagnoli, M., M. Clement, M. Crawley and S. Watts, 2009. The relative profitability of analysts’ stock recommendations: what role does investor sentiment play? Working paper, University of Texas at Austin.

This study investigates whether analysts who pay attention to investor sentiment issue more or less profitable stock recommendations than their peers. We find that analysts whose stock recommendations are positively correlated with recent or future investor sentiment tend to issue relatively less profitable recommendations. Our results suggest that analysts attempting to maximize the profitability of their stock recommendations may wish to focus on fundamentals such as earnings, cash flows, and discount rates rather than attempting to predict investor sentiment or other signals that may affect a firm’s stock price but that are not theoretically related to the firm’s underlying intrinsic value.


Barber, B., R. Lehavy and B. Trueman, 2007, Comparing the stock recommendation performance of investment banks and independent research firms, Journal of Financial Economics 85, 490-517.

From January 1996 through June 2003, the average daily abnormal return to independent research firm buy recommendations exceeds that of investment bank buy recommendations by 3.1 basis points (almost 8 percentage points annualized). Investment bank buy recommendation underperformance is more pronounced following the NASDAQ market peak (March 10, 2000) and strikingly so for buy recommendations on firms that recently conducted equity offerings. In contrast, investment bank hold and sell recommendations outperform those of independent research firms by 1.8 basis points daily (View the MathML source percentage points annualized). These results suggest reluctance by investment banks to downgrade stocks whose prospects dimmed during the bear market of the early 2000s, as claimed in the SEC’s Global Research Analyst Settlement.

Barber, B., R. Lehavy, M. McNichols, and B. Trueman, 2001, Can investors profit from the prophets? Security analyst recommendations and stock returns, Journal of Finance, 56, 531-563.

We document that purchasing (selling short) stocks with the most (least) favorable consensus recommendations, in conjunction with daily portfolio rebalancing and a timely response to recommendation changes, yield annual abnormal gross returns greater than four percent. Less frequent portfolio rebalancing or a delay in reacting to recommendation changes diminishes these returns; however, they remain significant for the least favorably rated stocks. We also show that high trading levels are required to capture the excess returns generated by the strategies analyzed, entailing substantial transactions costs and leading to abnormal net returns for these strategies that are not reliably greater than zero.


Barber, B., R. Lehavy, M. McNichols, and B. Trueman, 2003, Prophets and losses: Reassessing the returns to analysts’ recommendations, Financial Analyst Journal, 59: 2, 88-96.

After a string of years in which security analysts’ top stock picks significantly outperformed their pans, the year 2000 was a disaster. During that year the stocks least favorably recommended by analysts earned an annualized market-adjusted return of 48.66 percent while the stocks most highly recommended fell 31.20 percent, a return difference of almost 80 percentage points. This pattern prevailed during most months of 2000, regardless of whether the market was rising or falling, and was observed for both tech and non-tech stocks. While we cannot conclude that the 2000 results are necessarily driven by an increased emphasis on investment banking by analysts, our findings should add to the debate over the usefulness of analysts’ stock recommendations to investors. They should also serve to alert researchers to the possibility that excluding the year 2000 from their sample period could have a significant impact on any conclusions they draw concerning analysts’ stock recommendations.

Barber, B., R. Lehavy, M. McNichols, and B. Trueman, 2006, Buys, holds, and sells: The distribution of investment banks’ stock ratings and the implications for the profitability of analysts’ recommendations, Journal of Accounting and Economics, 41, 87-117.

This paper analyzes the distribution of stock ratings at investment banks and brokerage firms and examines whether these distributions can predict the profitability of analysts’ recommendations. We document that the percentage of buys decreased steadily starting in mid-2000, likely due, at least partly, to the implementation of NASD Rule 2711, requiring the public dissemination of ratings distributions. Additionally, we find that a broker’s ratings distribution can predict recommendation profitability. Upgrades to buy (downgrades to hold or sell) issued by brokers with the smallest percentage of buy recommendations significantly outperformed (underperformed) those of brokers with the greatest percentage of buys.

Barth, M.E. and Huttn, A.P. (2004) ‘Analyst earnings forecast revisions and the pricing of accruals’ Review of Accounting Studies 9, 59-96

We iphone porn investigate the relation between two market anomalies to provide insights into analysts’ role as information intermediaries. Prior research finds that accruals and analyst earnings forecast revisions predict future returns. We find that the accrual and forecast revision strategies generate hedge returns of 15.5% and 5.5% when implemented independently. Strikingly, a combined strategy that uses forecast revisions to refine the accrual strategy generates a hedge return of 28.5%. Firms with consistent accrual and forecast revision signals have less persistent accruals and earnings. We also find that accruals can be used to refine the forecast revision strategy—high accruals are associated with overoptimism in analyst forecasts. Our findings indicate that although forecast revisions reflect information about accrual and earnings persistence beyond that reflected in the level of current year accruals, investors do not fully incorporate this information into their valuation assessments.

Bercel, A., 1994, Consensus expectations and international equity returns, Financial Analysts journal, July-August, 76-80.

Numerous studies of U.S. markets have shown that stock selection models have been able to isolate securities that earn returns above those predicted by a simple market model. Models examining the relation between analyst expectations and returns have been particularly useful. Unexpected earnings, changes in analysts’ earnings-per-share forecasts, the number of analysts revising their forecasts–all these measures have been found to be useful in predicting abnormal returns in U.S. equity markets. At least two of these measures–changes in analysts’ EPS forecasts and the number of analysts changing their forecasts–are also related to abnormal returns in several international markets.

Bonner, Sarah E.; Hugon, Artur and Walther, Beverly R., 2007, Investor Reaction to Celebrity Analysts: The Case of Earnings Forecast Revisions. Journal of Accounting Research, Vol. 45, No. 3, pp. 481-513.

We examine the effects of analysts’ celebrity on investor reaction to earnings forecast revisions. We measure celebrity as the quantity of media coverage analysts receive in sources included in the Dow Jones Interactive database, and find that media coverage is positively related to investor reaction to forecast revisions. The effect of celebrity on the reaction to forecast revisions remains significant after controlling for forecast performance variables examined in prior studies (ex post forecast accuracy, ex ante accuracy, award status, and other variables shown to be related to forecast accuracy). While these results are consistent with the familiarity of the analyst’s name affecting the market reaction, we cannot rule out that our measure of celebrity is correlated with error in the performance measures we examine and/or correlated with other unexamined dimensions of forecast performance. A content analysis of a random subsample of the media coverage of our sample analysts suggests that our findings likely are not due to the increased availability of forecast revisions. Finally, an investigation of the excess returns around the quarterly earnings announcement date suggests that market participants react too strongly to forecast revisions issued by analysts with high levels of media coverage. Taken together, these findings suggest that an analyst’s level of media coverage can affect the initial market reaction to his forecast revisions.

Bradshaw, M., 2004, How do analysts use their earnings forecasts in generating stock recommendations? The Accounting Review 79, 25-50.

This paper examines whether valuation estimates based on analysts’ earnings forecasts are consistent with their stock recommendations. Because earnings forecasts are linked to value and recommendations reflect analysts’ opinions of value relative to current price, earnings forecasts and stock recommendations should be linked in a predictable manner. I consider four possible valuation models of how earnings forecasts and stock recommendations are linked. These models include two specifications of the residual income model, a price-earnings-to-growth (PEG) model, and analysts’ projections of long-term earnings growth. The results provide little evidence that analysts’ recommendations are explained by either residual income model specification. However, both the PEG model and analysts’ projections of long-term earnings growth explain analysts’ stock recommendations. The relation between the valuation models and future returns is also examined. Analysts’ projections of long-term earnings growth have the greatest explanatory power for stock recommendations, but investment strategies based on these projections have the least association with future excess returns. Overall, the evidence suggests that analysts’ recommendations are more correlated with heuristic valuation models than with present value models, and buy-and-hold investors would earn higher returns relying on present value models that incorporate analysts’ earnings forecasts than on analysts’ recommendations.

Brown, L. and K. Huang, 2010, The Impact of Stock Recommendation-Earnings Forecast Consistency on Forecast Accuracy and Recommendation Profitability, Working paper, Georgetown University.

Earnings forecasts and stock recommendations are often issued simultaneously and evaluated jointly by investors. Analysts’ earnings forecasts are often inconsistent with their stock recommendations. We investigate the implications of forecast-recommendation consistency for the informativeness of the two signals and the quality of earnings forecasts. We define a forecast-recommendation pair as consistent if both the forecast and the recommendation are above or below its existing consensus. We show that consistent pairs are more informative than inconsistent pairs, and consistent forecasts are more accurate, timelier, and bolder than inconsistent ones. We show that consistent pairs wherein both the forecast and recommendation are below its existing consensus are more informative than those consistent pairs wherein the forecast and recommendation are above its existing consensus, and that consistent earnings forecasts below the forecast consensus are timelier and bolder but less accurate than those earnings forecasts below the forecast consensus.

Carhart, M., 1997, On persistence in mutual fund performance, Journal of Finance, 52, 57-82.

Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds’ mean and risk-adjusted returns. Hendricks, Patel and Zeckhauser’s (1993) “hot hands’ result is mostly driven by the one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.

Cen, Ling; Wei, K. C. John and Zhang, Jie, 2007, Dispersion in Analysts’ Earnings Forecasts and the Cross Section of Stock Returns: What is the Driving Factor?

Recent studies have documented that stocks with lower dispersion in analysts’ earnings forecasts earn higher future returns. The economic interpretation of this observation is that dispersion in earnings forecasts represents differences of opinion among analysts. That is, under short-sale constraints, stocks prices reflect the valuation of optimistic investors and such optimism tends to be stronger when investors observe dispersed opinions about a stock’s valuation. This interpretation is based on the economic meaning of the standard deviation of earnings forecasts in the numerator of the dispersion measure, while treating the absolute value of the mean earnings forecast in the denominator of the dispersion measure as just a scalar. However, contrary to the differences-of-opinion explanation, our results show that the predictability of dispersion in analysts’ earnings forecasts on future stock returns mainly comes from the denominator effect rather than from the numerator effect of the dispersion measure. We also find that dispersion in analysts’ earnings forecasts has the strongest predictive power among the most undervalued stocks. Our results appear to cast doubt on the differences-of-opinion explanation for the negative relationship between dispersion in analysts’ earnings forecasts and future stock returns.

Chan, K.C., N. Jegadeesh, and J. Lakonishok (1996), ‘Momentum Strategies ‘, Journal of Finance 58, 643-864

We examine whether the predictability of future returns from past returns is due to the market’s underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book-to-market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts’ earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.

Chen, S. and D. Matsumoto, 2006, Favorable versus unfavorable recommendations: the impact on analyst access to management-provided information, Journal of Accounting Research, 44, 657-689.

This study examines recent regulatory and practitioner concerns that managers provide more (less) information to analysts with more (less) favorable stock recommendations. We examine the relative forecast accuracy of analysts before and after a recommendation issuance under the assumption that increases (decreases) in management-provided information will increase (decrease) analysts’ relative forecast accuracy. We find that analysts issuing more favorable recommendations experience a greater increase in their relative forecast accuracy compared with analysts with less favorable recommendations. Additional tests on the change in frequency with which analysts issue forecasts independent of or in conjunction with other analysts after their recommendation change yield corroborating results. In addition, we find that the greater increase in relative accuracy for analysts with more favorable recommendations exists prior to the passage of Regulation FD but not after. The combined results are consistent with analysts receiving relatively more management-provided information following the issuance of more favorable recommendations.

Cheng, Y, M. H. Liu, and J. Qian, 2006, Buy-side analysts, sell-side analysts, and investment decisions of money managers, Journal of Financial and Quantitative Analysis, 41, 51-83.

We examine the role of financial analysts in forming institutional investors’ investment decisions. In our model, a fund manager invests in a stock based on the optimal weighting of reports created by a biased sell-side analyst and an unbiased buy-side analyst. The manager puts a higher weight on the buy-side analyst’s report when the quality of the buyside analyst’s information relative to that of the sell-side analyst increases, or when the sell-side analyst’s degree of bias or uncertainty about the bias increases. Utilizing a unique dataset of U.S. equity funds, we find evidence supporting our model predictions on how fund managers weigh buy-side research relative to sell-side and independent research.

Christophe, S., M. Ferri and J. Hsieh, 2010, Informed trading before analyst downgrades: Evidence from short sellers, Journal of Financial Economics, 95, 85-106.

This paper studies short-selling prior to the release of analyst downgrades in a sample of 670 downgrades of NASDAQ stocks between 2000 and 2001. We find abnormal levels of short-selling in the three days before downgrades are publicly announced. Further, we show that this pre-announcement abnormal short-selling is significantly related to the subsequent share price reaction to the downgrade, and especially so for downgrades that prompt the most substantial price declines. Our findings are robust to various controls that might also affect short-selling such as pre-announcement momentum, three-day pre-announcement returns, and announcement-day share price. In addition, the results are independent of scheduled earnings announcements, analyst herding, and non-routine events near downgrades. Further evidence suggests that tipping is more consistent with the data than the prediction explanation which posits that short sellers successfully predict downgrades on the basis of public information about firms’ financial health. Finally, we present evidence that downgraded stocks with high abnormal short-selling perform poorly over the subsequent six months by comparison with those with low abnormal short-selling. Overall, our results support the hypothesis that short sellers are informed traders and exploit profitable opportunities provided by downgrade announcements.

Clement, M., 1999, Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter? Journal of Accounting and Economics, 27, 285-304.

Prior studies have identified systematic and time persistent differences in analysts’ earnings forecast accuracy, but have not explained why the differences exist. Using the I/B/E/S Detail History database, this study finds that forecast accuracy is positively associated with analysts’ experience (a surrogate for analyst ability and skill) and employer size (a surrogate for resources available), and negatively associated with the number of firms and industries followed by the analyst (measures of task complexity). The results suggest that analysts’ characteristics may be useful in predicting differences in forecasting performance, and that market expectations studies may be improved by modeling these characteristics.

Clement, Michael B, Tse, Senyo Y (2003) Do Investors Respond to Analysts’ Forecast Revisions as if Forecast Accuracy Is All That Matters?

Prior research suggests that investors’ response to analyst forecast revisions increases with the analyst’s forecast accuracy. We extend this research by examining whether investors appear to extract all of the information that analyst characteristics provide about forecast accuracy. We find that only some of the analyst characteristics that are associated with future forecast accuracy are also associated with return responses to forecast revisions. This suggests that investors fail to extract some of the information that analyst characteristics can provide about future forecast accuracy. In addition, forecast properties other than expected accuracy appear to be value-relevant. For example, investors respond more strongly to forecasts released earlier in the year and to forecasts by analysts employed by large brokerages than appears warranted by the ability of forecast timeliness and broker size to predict forecast accuracy. We conclude that investors respond to analysts’ forecast revisions as if forecast accuracy is not all that matters.

Cohen, L., A. Frazzini and C. Malloy, 2010, Sell-side school ties, Journal of Finance, 65, 1409-1437.

We lesbian porn study the impact of social networks on agents’ ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell-side equity analysts and senior officers of firms, we test the hypothesis that analysts’ school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 8.16% per year, while post-Reg FD the return premium is nearly zero and insignificant.

Copeland, Tom, Dolgoff, Aaron  and Moel, Alberto, 2004,  – Monitor Corporate Finance, Monitor Group and Harvard Business School, USA Charles River Associates, USA Monitor Corporate Finance, Monitor Group and, Hong Kong University of Science and Technology, Hong Kong, The Role of Expectations in Explaining the Cross-Section of Stock Returns

We find highly significant results when the cross-section of market-adjusted stock returns is regressed against changes in analyst expectations this year about: (1) this year’s earnings, (2) next year’s earnings, (3) long-term earnings growth, and (4) noise (measured as the standard deviation of analyst forecasts). Surprisingly, changes in expectations about this year’s earnings are not significant in a multiple regression with the other independent variables. Changes in expectations about next year’s earnings are highly significant but with an impact that is much smaller than that of changes in expectations about the long-term growth in earnings. Changes in noise are also statistically significant and are negatively related to market-adjusted returns, an indication that the signal to noise ratio, rather than merely the signal, is what drives price adjustments to new information.

Cowen, A., B. Groysberg, and P. Healy, 2006, Which types of analyst firms make more optimistic forecasts? Journal of Accounting and Economics 41, 119-146.

Research optimism among securities analysts has been attributed to incentives provided by underwriting activities. We examine how analysts’ forecast and recommendation optimism varies with the business activities used to fund research. We find that analysts at firms that funded research through underwriting and trading activities actually made less optimistic forecasts and recommendations than those at brokerage houses, who performed no underwriting. Optimism was particularly low for bulge underwriter firm analysts, implying that firm reputation reduces research optimism. There is also evidence that analysts at retail brokerage firms are more optimistic than those serving only institutional investors. We conclude that analyst optimism is at least partially driven by trading incentives.

Dechow, P., A. Hutton, and R. Sloan, 2000, The relation between analysts’ forecasts of long-term earnings growth and stock price performance following equity offerings, Contemporary Accounting Research 17, 1-32.

In this paper we evaluate the role of sell-side analysts’ long-term earnings growth forecasts in the pricing of common equity offerings. We find that, in general, sell-side analysts’ long-term growth forecasts are systematically overly optimistic around equity offerings and that analysts employed by the lead managers of the offerings make the most optimistic growth forecasts. In additional, we find a positive relation between the fees paid to the affiliated analysts’ employers and the level of the affiliated analysts’ growth forecasts. We also document that the post-offering underperformance is most pronounced for firms with the highest growth forecasts made by affiliated analysts. Finally, we demonstrate that the post-offering underperformance disappears once we control for the overoptimism in earnings growth expectations. Thus, the evidence presented in this paper is consistent with the “equity issue puzzle” arising from overly optimistic earnings growth expectations held at the time of the offerings.

Denis, D., D., Denis and A., Sarin, 1994, The information content of dividend changes: cash flow signaling, overinvestment and dividend clienteles, Journal of Financial and Quantitative Analysis, 29, 567-587.

We examine the cash flow signaling, overinvestment, and dividend clientele explanations for the information content of dividend change announcements. After simultaneously controlling for the standardized dividend change, dividend yield, and Tobin’s Q, we find that announcement period excess returns are positively related to the magnitude of the standardized dividend change and to the dividend yield, but unrelated to Tobin’s Q. We provide further evidence on the cash flow signaling and overinvestment hypotheses by examining revisions in analysts’ earnings forecasts and changes in capital expenditures following dividend change announcements. We find that analysts significantly revise their earnings forecasts following dividend changes and that Q < 1 firms actually increase their capital expenditures following dividend increases and decrease them following dividend decreases. Overall, our findings support the cash flow signaling and dividend clientele hypotheses for stock price reactions to dividend change announcements, but provide little support for the overinvestment hypothesis.

Dische, Andreas, 2002, Dispersion in Analyst Forecasts and the Profitability of Earnings Momentum Strategies, European Financial Management, 8, pp. 211-228.

This paper shows that the dispersion in analysts’ consensus forecasts contains incremental information to predict future stock returns. Consistent with prior research, stock prices in the German market underreact to news about future earnings and drift in the direction suggested by analysts’ forecasts revisions. Even higher abnormal returns can be achieved by applying such an earnings momentum strategy to stocks with a low dispersion in analyst forecasts. These results support one of the recent behavioral models in which investors underweight new evidence and conservatively update their beliefs in the right direction, but by too little in magnitude with respect to more objective information.

Dugar, A. and S. Nathan, 1995, The effect of investment banking relationships on financial analysts’ earnings forecasts and investment recommendations, Contemporary Accounting Research, 12:1, 131-160.

This study shows that financial analysts of brokerage firms that provide investment banking services to a company (investment banker analysts) are optimistic, relative to other (noninvestment banker) analysts, in their earnings forecasts and investment recommendations. Returns earned by following the investment recommendations of investment banker analysts, however, are not significantly different from those of non-investment banker analysts. Given that information regarding the investment banking relationships of brokerage firms is publicly available, we find evidence that capital market participants rely relatively less on the investment banker analysts in forming their earnings expectations. Although we find a significant capital market reaction around the noninvestment banker analysts’ research report dates and not around the investment banker analysts’ research report dates, the difference between the two market reactions is not statistically significant. Finally, we find that investment banker analysts’ earnings forecasts are, on average, as accurate as those of noninvestment banker analysts.

Elton, J., M. Gruber, and M. Gultekin, 1981, Expectations and share prices, Management Science, 27, 975-987.

It is generally believed that security prices are determined by expectations concerning firm and economic variables. Despite this belief there is very little research examining expectational data. In this paper we examine how expectations concerning earning per share effect share price. We first show that knowledge concerning analyst’s forecasts of earnings per share cannot by itself lead to excess returns. Any information contained in the consensus estimate of earnings per share is already included in share price. Investors or managers who buy high growth stocks where high growth is determined by consensus beliefs should not earn an excess return. This is not due to earnings having no effect upon share price since knowledge of actual earnings leads to excess return. Much larger excess returns are earned if one is able to determine those stocks for which analysts most underestimate return. Finally, the largest returns can be earned by knowing which stocks for which analysts will make the greatest revision in their estimates. This pattern of results suggests that share price is affected by expectations about earnings per share. Given any degree of forecasting ability managers can obtain best results by acting on the differences between their forecasts and consensus forecasts.

Ertimur, Y., J. Sunder and S.V. Sunder, 2007, Measure for measure: the relation between forecast accuracy and recommendation profitability of analysts, Journal of Accounting Research, 45, 567-606.

We examine the contemporaneous relation between earnings forecast accuracy and recommendation profitability to assess the effectiveness with which analysts translate forecasts into profitable recommendations. We find that, after controlling for expertise, more accurate analysts make more profitable recommendations, albeit only for firms with value-relevant earnings. Next, we show that conflicts of interest from investment banking activities affect the relation between accuracy and profitability. In the case of buy recommendations, more accurate forecasts are associated with more profitable recommendations only for the nonconflicted analysts. For hold recommendations, higher levels of accuracy are associated with higher levels of profitability for conflicted analysts, provided these recommendations are treated as sells. Finally, we find that regulatory reforms aimed at mitigating analyst conflicts of interest appear to have improved the relation between accuracy and profitability. Specifically, the integrity of buy and hold recommendations has improved and the change is more pronounced for analysts expected to be most conflicted.

Falkenstein, celebrity nude E.G., 1996, Preferences for stock characteristics as revealed by mutual fund portfolio holdings, Journal of Finance 51, 111-135.

This investigation of the cross-section of mutual fund equity holdings for the years 1991 and 1992 shows that mutual funds have a significant preference towards stocks with high visibility and low transaction costs, and are averse to stocks with low idiosyncratic volatility. These findings are relevant to theories concerning investor recognition, a potential agency problem in mutual funds, tests of trend-following and herd behavior by mutual funds, and corporate finance.

Forbes (Loughborough) , Huigen (Groningen) , Plantinga (Groningen) (2004)-  Using Analyst Earnings Forecasts for County /Industry – Based Asset Allocation [ find significant post revision effect for individual companies however abnormal returns evaporate as move to industry or country level ]

Purpose – This paper seeks to investigate the usefulness of analysts’ earnings forecast revisions in the allocation of funds to different industries and countries. In particular, it asks whether a post analyst revision announcement drift in prices can be exploited to guide an asset allocation strategy based on industry, or country, selection.

Design/methodology/approach – The methodology is to use monthly consensus I/B/E/S – First Call analysts’ earnings forecasts for companies listed on the main European stock markets over the period January 1987 to December 2001.

Findings – It is found that a significant post revision announcement effect for individual companies. However, the abnormal returns evaporate away as the research moves from an individual company level to an industry or country level. The paper provides two kinds of evidence which seem to cast doubt on the analysts’ ability to fully incorporate industry and country specific information into their forecasts: returns are driven more by common components than earnings forecast revisions, and company specific news reflected by the revision signal dominates industry or country news.

Originality/value – Locates the origin of stock price momentum strategies in news about earnings reflected in analysts’ forecasts revisions.

Frankel, Richard M., Kothari, S.P. and Weber, Joseph Peter, Determinants of the Informativeness of Analyst Research (September 2003). MIT Sloan Working Paper No. 4243-02.

Analyst research helps prices reflect information about a security’s fundamentals. However, analysts’ private incentives potentially contribute to misleading research and it is possible that the market fixates on such misleading and/or optimistic reports. We examine cross-sectional determinants of the informativeness of analyst reports, i.e., their effect on security prices, controlling for endogeneity among the factors affecting informativeness. Analysts are more informative when the potential brokerage profits are higher (e.g., high trading volume and high volatility) and when they reveal “bad news.” Analyst informativeness is reduced in circumstances of increased information processing costs. We fail to find evidence that informativeness of analyst reports is due to market’s fixation or over- or under-reaction to analyst reports.

2006 Version:

We examine cross-sectional determinants of the informativeness of analyst research, i.e., their effect on security prices, controlling for endogeneity among the factors affecting informativeness. Analyst reports are more informative when the potential brokerage profits are higher (e.g., high trading volume, high volatility, and high institutional ownership) and lower when information processing costs (e.g., more business segments) are high. We also find that the informativeness of analyst research and informativeness of financial statements are complements.

Givoly, D., and J. Lakonishok, 1979, The information content of financial analysts’ forecasts of earnings, Journal of Accounting and Economics, 1, 165-185.

The paper assesses the information content of revisions in financial analysts’ forecasts of earnings by analyzing the relation between the direction of these revisions and stock price behavior. Abnormal returns during the months surrounding the revisions in analysts’ forecasts are computed and evaluated. The results strongly indicate that information on revisions in forecasts of earnings per share is valuable to investors. It is also suggested that market reaction to the disclosure of analysts’ forecasts is relatively slow and gives rise to potential abnormal returns to investors who act upon this type of publicly available information.

Gleason, porn cartoon Cristi A. and Lee, Charles M. C., 2003, Analyst Forecast Revisions and Market Price Discovery, The Accounting Review, Vol. 78, No. 1, pp. 193-225.

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.

Green, C., 2006, The value of client access to analyst recommendations. Journal of Financial and Quantitative Analysis, 41, 1-24.

Early access to stock recommendations provides brokerage firm clients with incremental investment value. After controlling for transaction costs, purchasing (selling) quickly following upgrades (downgrades) results in average two-day returns of 1.02% (1.50%). Short-term profit opportunities persist for two hours following the pre-market release of new recommendations. The results are robust within sub-periods and a calendar-based strategy produces positive abnormal daily returns of over 10 basis points, or roughly 30% annualized. Recommending firms’ market makers shift their quotes accordingly, providing indirect evidence that clients make use of the informational advantage that arises from analysts’ opinion changes.

Groysberg, B., P. Healy, G. Serafeim, D. Shanthikumar and G. Yang, 2010a, The performance of buy-side analyst recommendations. Working paper Harvard Business School.

We porn cartoon examine the performance of stock recommendations for analysts at a large investment firm relative to those of sell-side analysts from mid-1997 to 2004. The buy-side firm analysts made less optimistic stock recommendations than sell-side peers, consistent with their facing fewer conflicts of interest. However, their buy recommendations under-performed sell-side recommendations by 5.9% using market-adjusted returns, and by 3.8% using four-factor model abnormal returns. The under-performance appears to arise from the buy-side analysts’ focus on large cap stocks that presumably provide the liquidity demanded by their portfolio managers.

Groysberg, B., P. Healy, N. Nohria, and G. Serafeim, 2010b, What determines analyst forecasts? Financial Analysts Journal, forthcoming.

A firm’s competitive environment, its strategic choices, and its internal capabilities are considered important determinants of its future performance. Yet there is little evidence on whether analysts’ forecasts of firm performance actually reflect any of these factors and which are considered most important. We use survey data from 967 analysts ranking 837 companies to judge how their forecasts are related to evaluations of firms’ industry competitiveness, strategic choices, and internal capabilities. Forecasts are generally associated with many of the factors that money managers rate as important in their assessments of analyst contributions, including industry growth and competitiveness, low-price strategy, strategy execution, top management quality, innovation, and performance-driven culture. We also find wide variation across variables for ratings consistency among analysts covering the same firm. On average, consistency is higher for sell-side than buy-side analysts, consistent with sell-side analysts facing greater incentives to herd.

Guttman, Ilan, The Timing of Analysts’ Earnings Forecasts (June 11, 2009). The Accounting Review, Vol. 85, 2010.

Existing literature assumes that the order and timing of analysts’ earnings forecasts are determined exogenously. However, analysts choose when to issue their forecasts. This study develops a model that endogenizes the timing decision of analysts and analyzes their equilibrium timing strategies. In the model, analysts face a trade-o¤ between the timeliness and the precision of their forecasts. The model introduces a timing game with two analysts, derives and analyzes its unique pure strategies equilibrium, and provides new empirical predictions about the precision and timing of analysts’ forecasts. The equilibrium has one of two patterns: either the times of the analysts’ forecasts cluster, or there is a separation in the times of the forecasts. The less informed and less similar the analysts are, the more likely it is that they forecast at different points in time. All else equal, analysts with a higher precision of initial private information tend to forecast earlier, and analysts with a higher learning ability tend to forecast later.

Huang, Y, (2006) Analysts’ Forecasts, Information, and Capital Market

Essay 1: R&D Expenditures and the Informativeness of gay sex video Analyst Forecast Revisions. This paper examines the informativeness of analyst forecast revisions for R&D firms by focusing on the asymmetric valuation role between upward and downward revisions. Prior studies (e.g. McNichols and O’Brien (1997); Diether, Malloy and Scherbina (2002)) argue that analysts are less willing to disclose unfavorable opinions than favorable opinions, and this induces an optimistic bias in consensus forecasts that increases in the degree of earnings uncertainty. Extending this argument, I predict that, relative to downward revision, upward revision is more correlated with future earnings and helps price reflect future earnings news faster, especially in high (versus low) R&D firms whose earnings is more uncertain. The evidence is consistent with the predictions. Furthermore, the return differentials between high and low R&D portfolios (as found in Chan, Lakonishok and Sougiannis (2001)) are mitigated in the firms with upward revisions. These results provide a better understanding of the properties of forecast revisions and their implications for stock pricing.

Essay 2: Earnings Management in Stock Financed Takeovers: The Role of Analysts as Information Intermediary. This paper investigates the role of analysts as information intermediary in corporate takeovers, especially stock financed takeovers. Analysts’ earnings forecasts are not inflated by abnormal accruals in merger announcement year, the earnings management proxy, but rather become more pessimistic for stock-financed acquirers whose earnings management is more intensive. In addition, for stock-financed acquirers, the magnitude of abnormal accruals is relative smaller when analyst coverage is higher. Third, the market reaction is less negative in relation to abnormal accruals of stock-financed acquirers, which are associated with higher analyst coverage. The evidence is generally consistent with the notion that analysts play an informational role in the capital market.

Irvine, P., M. Lipson, and A. Puckett, 2007, Tipping. Review of Financial Studies, 20, 741-768.

We animated porn investigate the trading of institutions immediately before the release of analysts’ initial buy recommendations. We document abnormally high institutional trading volume and buying beginning five days before recommendations are publicly released. Abnormal buying is related to initiation characteristics that would require knowledge of the content of the report—such as the identity of the analyst and brokerage firm, and whether the recommendation is a strong buy. We confirm that institutions buying before the recommendation release earn abnormal profits. Our results are consistent with institutional traders receiving tips regarding the contents of forthcoming analysts’ reports. (JEL G14, G18, G24)

Jegadeesh N, Livnat J. Revenue surprises and stock returns. Journal of Accounting & Economics [serial online]. April 2006; 41(1/2):147-171.

This paper examines the relation between revenue surprises and contemporaneous and future stock returns. It also investigates whether analysts update their earnings forecasts in response to revenue surprises in a timely and unbiased fashion. Stock price reaction on the earnings announcement date is significantly related to contemporaneous as well as past revenue surprises. After controlling for earnings surprises, we find significant abnormal returns in the post-announcement period for stocks that have large revenue surprises. Although analysts revise their forecasts of future earnings in response to revenue surprises, they are slow to incorporate fully the information in revenue surprises.

Jegadeesh, N., J. Kim, S. D. Krische and C. M. C. Lee, 2004, Analyzing the analysts: When do recommendations add value? Journal of Finance, 59, 1083-1124.

We show that analysts from sell-side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of other predictive variables.

Jegadeesh, Narasimhan and Ivkovich, Zoran, The Timing and Value of Forecast and Recommendation Revisions: Do Analysts Receive Early Peek at Good News? (November 2002). AFA 2004 San Diego Meetings.

This paper evaluates the information content of analysts’ one-quarter-ahead earnings forecast revisions and recommendation revisions at various points in event time relative to earnings announcement dates. Across three sets of tests, we find that the revisions are least informative in the week after earnings announcements and that the information content of revisions generally increases over event time. We find a sharp increase in the information content of upward forecast revisions and recommendation upgrades in the week before earnings announcements, but we do not find a similar increase for downward revisions or for recommendation downgrades.

Jung, B., P. Shane and Y. Yang, 2009, Do financial analysts’ long-term growth forecasts reflect effective effort towards informative stock recommendations? Working paper, University of Colorado.

Prior literature finds that economic incentives related to generating investment banking business and trading commissions dominate explanations for the variation in analysts’ forecasts of firms’ long-term earnings growth (LTG) and, therefore, LTG forecasts provide little, if any, insight into the real growth prospects and current valuation of a firm’s equity securities. From prior research evidence, one might draw the natural conclusion that LTG forecasts are disconnected with any meaningful effort by analysts to value a firm’s securities. Consistent with this proposition, prior research indicates that investors who rely on analysts’ LTG forecasts experience inferior trading profits. Whether stock analysts do, in fact, issue long-term growth forecasts that bear no relation to their effort in formulating stock recommendations that identify mispriced securities remains an interesting research question, which this paper attempts to address. Specifically, we examine whether issuance of LTG forecasts reflects analyst effort that enhances the value-relevance of their stock recommendations. We show that analysts with LTG forecasts make timelier recommendations, the stock market responds more strongly to recommendation revisions by analysts who also issue LTG forecasts, and investors following the stock recommendations of analysts issuing LTG forecasts earn more trading profits than investors relying on the recommendations of analysts not issuing LTG forecasts. Our results suggest that analysts’ LTG forecasts reflect effective effort to increase the value-relevance of stock recommendations.

Kasznik, Ron and McNichols, Maureen F., 2002, Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices, Journal of Accounting Research, Vol. 40, No. 3, pp. 727-759.

This paper investigates whether the market rewards firms meeting current period earnings expectations, and whether any such reward reflects the implications of meeting expectations in the current period for future earnings or reflects a distinct market premium. We document that abnormal annual returns are significantly greater for firms meeting expectations, controlling for the information in the current year’s earnings. We then test whether firms meeting expectations experience higher returns simply because their expected future earnings are also higher. We find firms meeting expectations have significantly higher earnings forecasts and realized earnings than firms that do not. We find that controlling for these higher future earnings, firms meeting expectations in one or two years do not receive a greater valuation than their fundamentals would suggest. We find, however, that the market assigns a higher value to firms that meet expectations consistently, controlling for an estimate of the firm’s fundamental value.

Keung, PhD Candidate, Olin School Business, Washington University – Do supplementary sales forecasts increase the credibility of Financial Analysts Earnings Forecasts

This study examines whether the market reacts more strongly to earnings forecast revisions when financial analysts supplement their earnings forecasts with sales forecasts. I find that earnings forecast revisions supplemented with sales forecast revisions have a greater impact on security prices than do stand-alone earnings forecast revisions, controlling for the incremental information content in sales forecasts. Supplemented earnings forecasts are more accurate ex post, controlling for other individual analyst characteristics. Results are robust to controlling for earnings persistence and time effects. Taken as a whole, financial analysts are more likely to supplement their earnings forecasts with sales forecasts when they have better information. Supplementary sales forecasts appear to lend credibility to earnings forecasts because financial analysts provide sales forecasts when they are more informed.

Klein, A., 1990, A direct test of the cognitive bias theory of share price reversals, Journal of Accounting and Economics, 13, 155-166.

The cognitive bias theory of share price reversals predicts that the market forms overly optimistic (pessimistic) earnings expectations for firms that experienced high (low) stock returns. This paper finds evidence inconsistent with this theory. Analysts do not underpredict earnings following large stock price declines; instead, they remain overly optimistic about future earnings. Similarly, analysts do not overpredict earnings for firms after periods of extreme price rises. It appears, then, that other factors are responsible for the observed mean reversions in share prices.

Kothari (MIT), Sabino (MIT), Zach (Wash U) (2004) – Implications of Survival and Data Trimming for Tests of market Efficiency – Journal of Accounting and Economics

Predictability of future returns using ex ante information (e.g., analyst forecasts) violates market efficiency. We show that predictability can be due to non-random data deletion, especially in skewed distributions of long-horizon security returns. Passive deletion arises because some firms do not survive the post-event long horizon. Active deletion arises when extreme observations are truncated by the researcher. Simulations demonstrate that data deletion induces a negative relation between future returns and ex ante information variables. Analysis of actual data suggests a 30–50% bias in the estimated relations. We recommend specific robustness checks when testing return predictability using ex ante information.


Krishnan buy generic propecia online (Yeshiva), Lim (Texas Christian), Zhou (CUNY Baruch) (2005), Who Herds?  Who Doesn’t?

We build a simple model of analysts’ propensity to herd. Using ideas from GMM and simulated method of moments, we estimate an analyst’s herding propensity with I/B/E/S forecast data from 1989-2004. We find that, of the analysts whose herding propensity is defined by our model, 85% of them tend to herd while 5% of them tend to stand out from the crowd (i.e., ‘anti-herd’). Out-of-sample tests validate our underlying model for analysts’ behavior. Further cross-sectional analyses suggest that an analyst tends to herd if she issues less accurate forecasts in the past, has more analysts that issue forecasts before her, a longer forecast horizon, issues forecast less frequently, has less firm-specific experience, more general experience, follows more industries, works for a smaller brokerage house, and follows a firm with less volatile earnings and smaller size.

Lin B, Yang R. The effect of repeat restructuring charges on analysts’ forecast revisions and accuracy. Review of Quantitative Finance & Accounting [serial online]. November 2006; 27(3):267-283.

The primary objective of this study is to examine the effect of prior restructuring charges on analyst forecast revisions and accuracy. We find evidence that analysts respond differently to first-time restructuring firms than to repeat restructuring firms. Analysts revise their forecasts of both one-year-ahead earnings and five-year long-term growth in earnings more negatively for first-time restructuring firms than for firms with prior charges. When we examine forecast errors in the year subsequent to the restructuring, we find that current charges complicate analysts’ earnings forecast task. We further find that the decline in analyst forecast accuracy is mitigated by prior charges within past two years.

Lin, H. and M. McNichols, 1998, Underwriting relationships, analysts’ earnings forecasts and investment recommendations, Journal of Accounting and Economics, 25, 101-127.

We examine the effect of underwriting relationships on analysts’ earnings forecasts and recommendations. Lead and co-underwriter analysts’ growth forecasts and recommendations are significantly more favorable than those made by unaffiliated analysts, although their earnings forecasts are not generally greater. Investors respond similarly to lead underwriter and unaffiliated ‘Strong buy’ and ‘Buy’ recommendations, but three-day returns to lead underwriter ‘Hold’ recommendations are significantly more negative than those to unaffiliated ‘Hold’ recommendations. The findings suggest investors expect lead analysts are more likely to recommend ‘Hold’ when ‘Sell’ is warranted. The post-announcement returns following affiliated and unaffiliated analysts’ recommendations are not significantly different.

Mikhail (Arizona State), Walther, B (Northwestern), Willis, R (Vanderbilt)   When Security Analysts Talk, Who Listens?   Feb 2007

Regulators’ interest in analyst reports stems from the belief that small investors are unaware of the conflicts sell-side analysts face and may, as a consequence, be misled into making suboptimal investment decisions. We examine who trades on security analyst stock recommendations by extending prior research to focus on investor-specific responses to revisions. We find that both large and small traders react to analyst reports; however, large investors appear to trade more than small traders in response to the information conveyed by the analyst’s recommendation and earnings forecast revision (proxied by the magnitudes of the recommendation change and the earnings forecast revision, respectively). We also find that small investors do not fully account for the effects of analysts’ incentives on the credibility of analyst reports, as captured by the type of recommendation (i.e., upgrade versus downgrade or buy versus sell). In particular, small investors not only trade more than large investors following upgrade and buy recommendations, but also trade more following upgrade and buy recommendations than they do following downgrade and hold/sell recommendations. Furthermore, we observe that, on average, small traders are net purchasers following recommendation revisions regardless of the type of the recommendation; large traders tend to be net sellers following downgrades and sells. Consequently, large traders generate statistically positive returns from their trading, while small traders generate statistically negative returns from their trading. These findings are consistent with large investors being more sophisticated processors of information, and provide some support for regulators’ concerns that analysts may more easily mislead small investors.

Miller cartoon porn videos (Notre Dame), Sedor (Notre Dame) – The Influence of Observed Stock Price Changes on Analysts’ Earnings Forecast Revisions:  Experimental Evidence – Jan 2006

Prior research demonstrates that the sign and magnitude of analysts’ earnings forecast revisions are positively associated with the sign and magnitude of prior security returns. In an experiment, we examine whether observed stock price changes influence analysts’ earnings forecast revisions in the context of varying levels of uncertainty about future earnings. We find that analysts’ earnings forecast revisions are influenced by observed stock price changes when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Additional analyses provide evidence that the effect of uncertainty about future earnings on analysts’ earnings forecast revisions is mediated by analysts’ confidence in their forecasts. Results suggest that part of the association between analysts’ earnings forecast revisions and prior security returns is likely due to analysts observing stock price changes and incorporating price information, either intentionally or unintentionally, into their forecasts.

Zhang, celebrity nude Frank, Information Uncertainty and Analyst Forecast Behavior (June 2005).

Prior literature observes that information uncertainty exacerbates investor underreaction behavior. In this paper, I investigate whether, as professional investment intermediaries, sell-side analysts suffer more behavioral biases in cases of greater information uncertainty. I show that greater information uncertainty predicts more positive (negative) forecast errors and subsequent forecast revisions following good (bad) news, which corroborates previous findings on the post-analyst-revision drift. The opposite effects of information uncertainty on forecast errors and subsequent forecast revisions following good versus bad news support the analyst underreaction hypothesis and are inconsistent with analyst forecast rationality or optimism suggested in prior literature.

Zhang, Y (Columbia) – Analysts’ Responsiveness and Market Underreaction to Earnings Announcements- Jan 2005

This study examines the responsiveness of analyst forecasts to current earnings announcements. The results show considerable cross-sectional variation in analyst responsiveness and suggest that this variation is related to the costs and benefits associated with prompt forecast revisions. More importantly, this study finds that with responsive forecast revisions, more of the market reaction takes place in the event window and less in the drift window, suggesting that analyst responsiveness mitigates the post-earnings-announcement drift and facilitates market efficiency.

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