The Information Content of Analyst Dissidence

Abstract

This paper focuses on the investment value of information contained in the tails of the analyst forecast distribution. I determine the investment value of the tails by looking at dissident analysts -- who release EPS forecasts far from the prevailing consensus. I then test the hypothesis that analysts who release such bold forecasts possess superior information not fully recognized by the market. Next, I provide evidence suggesting that the source of advantage outlined in this strategy was probably private information, rather than superior analyst ability in assessing public data. Finally, I relate this phenomenon to the question of limited investor attention by showing that investors do seem to appreciate the incremental information content of bold forecasts, but find it difficult to process such information when the processing requirement is more demanding. As a result, portfolio profits based on a dissidence strategy are insignificant and small in the sample of stocks followed by few analysts - where investors can easily notice the outliers- as compared to the large significant profits obtainable in the sample of stocks covered by many analysts.