Abstract
This article analyzes the behavior of two groups of corporate earnings forecasters: analysts, who follow individual company fortunes, and market strategists, who predict earnings for various company aggregates. Using data for two market indices, the S&P 500 and the Dow Jones Industrial Average, we document that bottom‐up forecasts are systematically more optimistic than top‐down forecasts made by strategists. This difference is not driven by the difference in the forecast target. This finding may be explained by the incentives that analysts face and/or by cognitive bias.
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