Why Do Security Analysts Issue Early Forecasts?

Abstract

We study security analysts’ production of long-horizon forecasts. While forecasts produced early in the horizon schedule have the potential to be the most helpful to clients, and these forecasts make up a nontrivial portion of analysts’ forecast production, prior literature essentially ignores the drivers and implications of long-horizon forecasts. We find that long-horizon forecast production is more common among analysts with lower reputation and less workload, and when analysts are initiating coverage. Additionally, long-horizon forecast production is higher for firms held by investors with longer investing horizons and firms that derive more of their value from distant cash flows. Analysts who issue long-horizon forecasts have a greater ability to affect prices, have better career outcomes, and are more likely to be voted all-stars.