Analyst Information Production and Forecast Timing

Abstract

We investigate whether the reputation-herding theory or the tradeoff theory explains variation in the timing of individual analysts’ forecasts. Using forecast accuracy improvements, forecast boldness, and the price impact of forecasts as measures of forecast quality, we find that in the information discovery phase that precedes an earnings announcement event, earlier forecasts have higher quality than later forecasts and find a similar pattern in the information analysis phase that begins with the earnings announcement date. Our findings suggest that consistent with the herding theory, more-capable analysts participate early in discovering and analyzing information and, therefore, earlier forecasts in the information discovery and analysis phases are of higher quality than later forecasts in that phase.