We investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts. We find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecasts tend to be more specific, accurate and less optimistically biased. These results are robust to changes specification, Granger causality tests, and simultaneous equation analyses. The results are similar in the pre- and post-Regulation Fair Disclosure (Reg FD) eras. Additional analysis suggests that concentrated institutional ownership is negatively associated with forecast properties. This association is less negative in the post-Reg FD environment, which is consistent with Reg FD reducing the ability of firms to privately communicate information to select audiences. Copyright 2005 The Institute of Professional Accounting, University of Chicago.

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This study examines whether the information implied by simultaneous levels of option and stock prices (specifically, the implied standard deviation of returns) reflects other contemporaneously available information. The independent contemporaneous measure considered is the observed dispersion (across several financial analysts), at a point in time, in the forecasts of earnings per share for a given firm. The results indicate that implied standard deviations clearly reflect the contemporaneous dispersion in analysts' forecasts incrementally, i.e., beyond the information contained in the historical time series of returns. VARIOUS TESTS OF THEBlack-Scholes option pricing model have appeared in the literature. The basic formulation posits the price of a call option to be a function of the simultaneous market price of the underlying stock, the instantaneous variance of the stock's rate of return, the exercise price and time to maturity of the option, and the risk-free interest rate. Studies by Black and Scholes [2], Galai [8], Chiras and Manaster [4], and Macbeth and Merville [12]used the formula to explain the observed prices of options to a successful degree. In these tests, all the information needed by the formula was directly observable, except the instantaneous stock return variance, which was measured as the time series variance of historical stock returns. Manaster and Rendleman [14] inverted the procedure to calculate implied stock prices (and implied standard deviations of stock returns simultaneously) and showed that such "implied prices contain information regarding equilibrium (future) stock prices that is not fully reflected in observed stock prices." Another set of studies (see Latane and Rendleman [11], Chiras and Manaster [4], Schmalensee and Trippi [16], among others) examined the properties of the implied instantaneous variance (or standard deviation) of stock returns that falls out of the formula when the values of all remaining variables are supplied. In a test of the predictive ability of such implied standard deviations (ISD's), Chiras and Manaster [4] found that for predicting future actual time series standard deviations (FSD's) of stock returns, the ISD's were superior predictors relative to using historic (past) time series standard deviations (HSD's).This empirically demonstrated superiority of implied prices and standard * University of Florida and Indiana University, respectively. We would like to thank Rashad Abdel-khalik, James Ohlson, Gerald Salamon, and Gregory Waymire for helpful comments. We are especially grateful to an anonymous referee for suggestions that markedly improved this paper. Remaining errors are our own. 1354The Journal of Finance

This study examines whether the information implied by simultaneous levels of option and stock prices (specifically, the implied standard deviation of returns) reflects other contemporaneously available information. The independent contemporaneous measure considered is the observed dispersion (across several financial analysts), at a point in time, in the forecasts of earnings per share for a given firm. The results indicate that implied standard deviations clearly reflect the contemporaneous dispersion in analysts' forecasts incrementally, i.e., beyond the information contained in the historical time series of returns.

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Prior empirical research indicates that trading volume reaction to new information increases with the heterogeneity of investors’ prior beliefs. We examine three potential factors that theoretical models of financial economists show determine trading volume reaction to new information: heterogeneous prior beliefs, differential interpretation, and the consensus effect—the extent to which the information causes their beliefs to converge or diverge. We find that these three factors have a distinct and significant incremental effect on trading volume, thereby suggesting that empirical trading volume models that exclude or fail to control for any of these determinants are misspecified with biased estimated coefficients.