Analyst Forecasts And Stock Returns
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Analyst Forecasts And Stock Returns
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Author : James S. Ang
language : en
Publisher:
Release Date : 2001
Analyst Forecasts And Stock Returns written by James S. Ang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
This study seeks to determine the relation between stock returns and analyst forecast properties, specifically, the dispersion and error of annual earnings forecasts. The results of portfolio sorts, Fama-MacBeth cross-sectional regression models, and Fama and French (1993) factor models indicate firms with low dispersion or error outperform firms with high dispersion or error. Robustness tests show the results are not explained by liquidity, momentum, industry, post-earnings announcement drift, or traditional risk measures. An investment strategy based on forecast properties is shown to produce zero-cost returns of 13% per year, yielding positive returns in all 19 years using an error measure. The results are not attributable to several potential theories. Risk-related theories are eliminated as firms with low dispersion or error (quot;transparentquot;) outperform firms with high dispersion or error (quot;opaquequot;). This remains true even after controlling for volatility measures. Behavioral theories based on optimism are also eliminated as optimistic forecasts only explain a small part of the results. Finally, the results are not related to contrarian-value strategies as the transparent firms outperform in both up and down markets.
Prospect Theory Analyst Forecasts And Stock Returns
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Author : Charlie Charoenwong
language : en
Publisher:
Release Date : 2013
Prospect Theory Analyst Forecasts And Stock Returns written by Charlie Charoenwong and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This paper documents how prospect theory can be used to explain stock returns and analysts' forecast behavior. Positive earnings surprises are associated with increases in abnormal returns but negative earnings surprises have only a limited negative impact on returns. We find that analysts display asymmetric behavior towards positive and negative earnings growth. Analysts' forecasts are found to be accurate during periods of positive earnings growth, but overly optimistic during periods of negative earnings growth. Our findings have implications for the structuring of investment products, as well as the role of market timing in their introduction.
Financial Analysts Forecasts And Stock Recommendations
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Author : Sundaresh Ramnath
language : en
Publisher: Now Publishers Inc
Release Date : 2008
Financial Analysts Forecasts And Stock Recommendations written by Sundaresh Ramnath and has been published by Now Publishers Inc this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business & Economics categories.
Financial Analysts' Forecasts and Stock Recommendations reviews research related to the role of financial analysts in the allocation of resources in capital markets. The authors provide an organized look at the literature, with particular attention to important questions that remain open for further research. They focus research related to analysts' decision processes and the usefulness of their forecasts and stock recommendations. Some of the major surveys were published in the early 1990's and since then no less than 250 papers related to financial analysts have appeared in the nine major research journals that we used to launch our review of the literature. The research has evolved from descriptions of the statistical properties of analysts' forecasts to investigations of the incentives and decision processes that give rise to those properties. However, in spite of this broader focus, much of analysts' decision processes and the market's mechanism of drawing a useful consensus from the combination of individual analysts' decisions remain hidden in a black box. What do we know about the relevant valuation metrics and the mechanism by which analysts and investors translate forecasts into present equity values? What do we know about the heuristics relied upon by analysts and the market and the appropriateness of their use? Financial Analysts' Forecasts and Stock Recommendations examines these and other questions and concludes by highlighting area for future research.
Analyst Forecasts And The Cross Section Of European Stock Returns
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Author : Steven K. Todd
language : en
Publisher:
Release Date : 2005
Analyst Forecasts And The Cross Section Of European Stock Returns written by Steven K. Todd and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
We examine revisions to earnings forecasts by equity analysts and their role in predicting stock returns. We provide evidence that European stocks with net upward revised forecasts earn higher future returns than otherwise similar stocks. This effect is not concentrated in small stocks, stocks with low analyst coverage, or stocks with low book-to-market ratios. We find differences in the return continuation patterns of stocks with upward versus downward revisions, namely, bad news travels quickly, but good news travels slowly. This result is consistent with investors' attaching greater significance to poor earnings forecasts, but adopting a wait-and-see approach to good news.
Analyst Earnings Forecasts And The Cross Section Of Stock Returns
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Author : Grawehr Louis-Emmanuel
language : en
Publisher:
Release Date : 2016
Analyst Earnings Forecasts And The Cross Section Of Stock Returns written by Grawehr Louis-Emmanuel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This thesis analyzes the ability of a value-to-price ratio (V/P) to predict the cross-section of European stock returns, where V is based on the residual income valuation model using analysts' consensus earnings estimates from I/B/E/S. The V/P ratio is designed to identify stocks where market expectations of earnings are not accurately impounded into prices. For the constituents of the Stoxx Europe 600 index in the years 2002-2014, I test whether a self-financing portfolio taking a long position in the top quintile of V/P and a short position in the bottom quintile of V/P generates abnormal returns. I find that this strategy does not exhibit a statistically significant positive alpha in the context of standard asset pricing models. I argue that stock prices reflect analyst forecasts more accurately and more quickly than before, leading to the unprofitability of the strategy. The strategy does however have a positive and significant exposure to the Quality-Minus-Junk factor proposed by Asness, Frazzini and Pedersen (2014). Indeed, the V/P ratio is positively related to a self-constructed quality index incorporating the dimensions profitability, growth, safety and payout. This suggests that returns from picking stocks where market earnings expectations are not accurately reflected in prices are in large part driven by their quality characteristics.
The Effect Of Analysts Forecasts On Stock Market Returns
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Author : Stefano Bonini
language : en
Publisher:
Release Date : 2009
The Effect Of Analysts Forecasts On Stock Market Returns written by Stefano Bonini and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
Stock returns forecasting is one of the major objectives of financial analysts. Equity Analysts' forecasts, on the other side, are one of the major sources of information used by less informed investors in their asset allocation decisions. Therefore, analysing which major drivers affect time series of stock returns could allow to shed light over the price revelation process in capital markets. In this paper we propose a model aimed at predicting stock market by combining both macroeconomic and microeconomic factors. We first develop a standard APT approach with multiple macroeconomic factors as regressors. We then integrate the model by explicitly including a metric for intrinsic equity value, basing upon a proxy derived by the weighted average of Stock Market Consensus Forecasts by equity analysts. Third, we complete the model by imposing an ARMA specification for the error term, which allows identifying stock returns' stationarity moving over time. The resulting model shows both a strong fitting capability when tested in the in-sample period and a good predictive capability when applied to an out-of-sample period of monthly Italian stock market returns. In particular, we employed specific estimation procedures based upon recently developed statistics aimed at testing for both factors' equal predicting power and forecast encompassing. As a major empirical finding, our model suggests that the information conveyed by analysts' forecasts is indeed a factor in determining future stock prices, even if there is the possibility that the information transferred could be biased.
Corporate Disclosure Analyst Forecast Dispersion And Stock Returns
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Author : Ashiq Ali
language : en
Publisher:
Release Date : 2016
Corporate Disclosure Analyst Forecast Dispersion And Stock Returns written by Ashiq Ali and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This paper examines whether a corporate disclosure practice is a reason for the forecast dispersion anomaly -- the negative relation between analyst forecast dispersion and future stock returns. Prior studies have shown that firms tend to disclose good news in a timely manner and delay the disclosure of bad news, and that withholding of news leads to greater dispersion in analysts' forecasts. Accordingly, we predict that firms with higher dispersion in analysts' earnings forecasts are more likely to experience poor earnings in subsequent quarters, and find evidence consistent with this prediction. After controlling for the relation between forecast dispersion and future earnings, we find that forecast dispersion is no longer negatively related to future stock returns. These results suggest that firms' tendency to withhold bad news increases forecast dispersion as well as causes the market to temporarily overvalue stocks until the bad news is publicly released.
Analyst Disagreement Forecast Bias And Stock Returns
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Author : Anna Scherbina
language : en
Publisher:
Release Date : 2008
Analyst Disagreement Forecast Bias And Stock Returns written by Anna Scherbina and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
We present evidence of inefficient information processing in equity markets by documenting that biases in analysts' earnings forecasts are reflected in stock prices. In particular, we show that investors fail to fully account for optimistic bias associated with analyst disagreement. This bias arises for two reasons. First, analysts issue more optimistic forecasts when earnings are uncertain. Second, analysts with sufficiently low earnings expectations who choose to keep quiet introduce an optimistic bias in the mean reported forecast that is increasing in the underlying disagreement. Indicators of the missing negative opinions predict earnings surprises and stock returns. By selling stocks with high analyst disagreement institutions exert correcting pressure on prices.
Analyst Forecast Skewness And Cross Section Stock Returns
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Author : Cai Zhu
language : en
Publisher:
Release Date : 2015
Analyst Forecast Skewness And Cross Section Stock Returns written by Cai Zhu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
In the paper, we show a significant economic linkage between analyst EPS forecast skewness and cross section stock returns. The effect on stock return of our skewness measure is quite different from that based on skewness calculated from options or high frequency data. Literature shows that, using such skewness as a signal, trading profit is generated mostly from over-valued stocks with high positive skewness, which is consistent with Barberis and Huang (2008)'s lottery arguments. However, we find that for our analyst forecast skewness, trading profit mainly comes from those stocks with negative skewness. Long-short strategy purchasing stocks with low forecast skewness and shorting those with high forecast skewness earns annualized abnormal returns 11% with sharpe ratio 0.64. Our study suggests that negative skewness stocks tend to be undervalued (risk-adjusted returns for negative skewness stocks are significantly positive), while stocks with high positive skewness have fair prices (risk-adjusted returns for positive skewness stocks are not significant). Our empirical results are closely related with investors learning behavior and consistent with Veronesi (1999) theory. In the model, Veronesi shows that when investors cannot observe cash flow growth rate, they tend to overreact to bad news, push current stock price down, such behavior will lead to higher future stock returns. Our results also hold when using robust skewness defined as the gap between analyst EPS forecast mean and median.
Do Changes In The Sg A Ratio Provide Information About In Future Earnings Analyst Forecast Revisions And Stock Returns
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Author : Eugene Scott Johnson
language : en
Publisher:
Release Date : 2013
Do Changes In The Sg A Ratio Provide Information About In Future Earnings Analyst Forecast Revisions And Stock Returns written by Eugene Scott Johnson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Accounting categories.
In fundamental analysis, increases in the ratio of selling, general and administrative (SG&A) costs to sales (SG&A ratio) are viewed as negative signals about future firm performance. However, this interpretation focuses on the overall change in the SG&A ratio and ignores the underlying changes in the components of the ratio. For example, prior literature finds that the interpretation offered by fundamental analysis does not hold during periods of decreasing sales. I contend that a further partitioning of the full sample into subsamples representing all possible combinations of changes in the components of the SG&A ratio, and the ratio itself, will yield incremental information about future firm performance. Accordingly, I identify six subsamples representing these combinations of changes and examine whether they are incrementally informative about future earnings, analyst forecasts, and stock returns. I find that changes in the SG&A ratio in four of my six subsamples are associated with changes in future earnings, and that results from prior literature regarding periods of decreasing sales are driven by a specific set of circumstances. I also find that analysts do not always recognize the information in the signals and incorporate the information into their forecast revisions. Finally, I find that changes in the SG&A ratio in five of my six subsamples provide statistically significant information regarding future stock returns that is not subsumed by the information contained in forecast revisions.