This study examines whether key characteristics of analysts' forecasts-timeliness, accuracy, and informativeness-change when investor demand for information is likely to be especially high, i.e., during periods of high uncertainty. Findings reveal that when uncertainty is high, analysts' forecasts are more timely but less accurate.However, analysts' forecasts are also more informative to the market, which is consistent with investors' demand for timely information, even if it is less accurate. We observe these findings when market prices are increasing and decreasing, consistent with the findings resulting from uncertainty in general rather than just uncertainty associated with market declines. We also examine how timeliness, accuracy, and informativeness change in response to elevated levels of three sources of uncertainty-market, industry, and firm level. We predict and find that analysts are better able to deal with heightened industry uncertainty, as reflected by greater timeliness with no loss in forecast accuracy. In contrast, analysts have greater difficulty dealing with heightened market uncertainty, as both timeliness and forecast accuracy decline.
K E Y W O R D Searnings forecasts, financial analysts, uncertainty
INTRODUCTIONEquity analysts play an important role in capital markets by interpreting public information relating to companies, industries, and the economy, and by developing private information to forecast future earnings and stock prices and to make stock recommendations. Investors rely on analysts' research reports, stock recommendations, and forecasts of earnings and other financial statement items as a source of information that provides a basis for investment decisions.The role of analysts is likely to be even more important during times of heightened uncertainty, when investors may have more difficulty interpreting public information relating to companies, industries, and the economy. High uncertainty implies there is less precise public information, which drives investor demand for information from analysts.Investors demand timely and accurate forecasts for use in valuation and investment decisions; however, uncertainty J Bus Fin Acc. 2018;45:295-318. wileyonlinelibrary.com/journal/jbfa