Abstract
We examine whether current-period stock prices influence analysts’ earnings forecasts. Using an experiment with financial analysts, we find that analysts updating their earnings forecasts in response to a management earnings forecast provide different forecasts depending on the stock price reaction to management’s forecast. Lower (higher) stock price leads to lower (higher) analysts’ forecasts. Further, we demonstrate that the influence of stock price on analysts’ forecasts is moderated by uncertainty about future earnings: higher earnings uncertainty increases the influence of stock price on analysts’ forecasts. Additional analyses indicate that this effect is mediated partially by analysts’ confidence in their forecasts and appears to be unintentional. Evidence from a follow-up survey, however, indicates that some professional analysts intentionally incorporate stock price information into their earnings forecasts. Overall, our evidence suggests that the association between prior security returns and analysts’ earnings forecasts documented in prior research is due, at least in part, to professional analysts incorporating stock price information, intentionally and unintentionally, into their earnings forecasts.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.