Abstract
Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return‐on‐equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm‐specific risk not captured by beta and firm size.
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