Abstract
We measure the information content of monthly analyst consensus forecasts for one-year-forward earnings per share (EPS) based on two well-established price discovery measures drawn from the area of market micro-structure research. Employing a 36-year sample of large US companies listed in the S&P 100 Index, we compute (i) Hasbrouck's information shares and (ii) Gonzalo and Granger's common factor component shares to measure the relative share that market participants and analysts have in the process of price discovery. We find that while analysts do not lead the capital market, they have a small but significant share in the process of price discovery, amounting to 4.6% (Hasbrouck) and 18.0% (Gonzalo and Granger) on average. This share varies significantly in the cross-section. We identify the level of analyst coverage as an explanatory factor: The greater a company's coverage, the smaller is the analysts' information share. This finding can be explained by analysts' herding behavior as well as by company incentives, which lower the information content of their estimates.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: 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.
