Do Investors Respond to Analysts' Forecast Revisions as if Forecast Accuracy Is All That Matters?

Clement, Michael B.; Tse, Senyo Y.

doi:10.2308/accr.2003.78.1.227

Cited by 385 publications

(309 citation statements)

References 23 publications

(52 reference statements)

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“…Readable reports, therefore, are associated with better expost forecast accuracy. Market participants, as a result, assign greater weight to forecast revisions (i.e., a bigger response coefficient), when updating their valuation based on the forecast revision (Clement and Tse, 2003). Overall, we predict that report readability complements the effect of information contained in analyst report and signals better accuracy, therefore, there is a positive association between report readability and stock return sensitivity to forecast revisions.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 72%

“…In other words, only analysts having quality information to predict future earnings accurately issue readable reports. Prior studies suggest that investors value characteristics that indicate the accuracy of analyst forecasts (Clement and Tse, 2003).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Topics that have been studied comprehensively include forecast accuracy and analyst characteristics (Clement, 1999;Clement and Tse, 2003), analyst forecasts walkingdown through the year (Ke and Yu, 2006), and the impact of analyst affiliation on forecasting performance (Barber, Lehavy, McNichols and Trueman, 2003;2007;Cliff, 2007). Although these studies have generated abundant findings, which have allowed better understanding of the role of analysts in the market, their focus has been primarily on two final outputs of analysts: earnings forecasts and stock purchase recommendations.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…We expect that if readability is a credible signal of accuracy, then readability has greater influence on investment decisions when analyst reports contain upward revisions rather than downward revisions. We further hypothesize that forecast accuracy is more related to readability when the forecasts result in upward revision of future 1 Prior studies suggest that markets have stronger response towards analyst forecast revisions when the forecast is expected to be more accurate (Abarbanell et al, 1995;Stickel, 1992;Park and Stice, 2000;Gleason and Lee, 2003;and Clement and Tse, 2003). This is the Pre-Published Version earnings expectations.…”

Section: Introductionmentioning

confidence: 99%

“…Security analysts are important information intermediaries who facilitate communication between investors and managements (Healy and Palepu, 2001). Prior studies suggest that analysts' career outcomes are linked to the quality of their forecasting work, assessed by ex-post verification of forecast accuracies (Mikhail, Walther and Willis, 1999;Clement and Tse, 2003;Hong and Kubik, 2003). Analyst reports contain vital information and the reasoning behind forecast revisions.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Analyst Report Readability

Hsieh

Hui

2011

SSRN Journal

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This paper studies three research questions regarding analyst forecast reports' readability: (1) whether readability of analyst reports affects investment decisions; (2) whether the way analysts explain the reasoning of their research (i.e. how they tell their story) relates to accuracy of earnings forecasts; and (3) whether readability of analyst reports relates to the underlying characteristics of the analysts. We find that the market reacts more favorably to reports that revise earnings forecasts upward and are easier to read. Consistent with this finding, upward revisions have smaller forecast errors in relatively more readable reports. We also find that security analysts with longer experience, who follow more firms, tend to issue more readable reports. Upward revisions issued by analysts from smaller brokerage houses and analysts having better records of forecast accuracy are more readable. Reports are also more readable when they are issued immediately after firms' public disclosures or management forecasts. Overall, readability complements the information of reports containing upward revisions, and indicates better forecast accuracy. This is the Pre-Published Version 3

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 72%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Analyst Report Readability

Hsieh

Hui

2011

SSRN Journal

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Competitive Dynamics in Forecasting: The Interaction of Skill and Uncertainty

Evgeniou

Fang

Hogarth

et al. 2012

Behavioral Decision Making

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The outcomes in many competitive tasks depend upon both skill and luck. Behavioral theories on risk taking in tournaments indicate that low‐skilled individuals may have incentives to take more risks than high‐skilled ones. We build on these theories and suggest, in addition, that when luck is more important in determining outcomes, the increase in risk taking is larger for low‐skilled than high‐skilled individuals. We test this hypothesis by analyzing stock analysts' forecasts of companies' earnings per share under market conditions that vary in volatility and thus imply different levels of luck in outcomes. Specifically, noting that forecasts that deviate widely from the consensus—which is observable by the analyst—potentially carry career‐related rewards but also reputational risks, we examine the degree of deviation from consensus exhibited by analysts of different skill levels (measured by both past forecasting accuracy and education) in different market conditions. We find that average deviations from consensus increase as markets become more volatile. At the same time, under conditions of high volatility, low‐skilled analysts exhibit larger increases in deviations from consensus than high‐skilled analysts. These field data results support our hypothesis based on of risk taking in tournaments. We discuss alternative interpretations such as, for example, self‐serving attributions and indicate directions for future research. Copyright © 2012 John Wiley & Sons, Ltd.

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Estimating private information usage amongst analysts: evidence from UK earnings forecasts

Mira

Taylor

2010

J. Forecast.

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This paper introduces a methodology for estimating the likelihood of private information usage amongst earnings analysts. This is achieved by assuming that one group of analysts generate forecasts based on the underlying dynamics of earnings, while all other analysts are assumed to issue forecasts based on the prevailing consensus forecast. Given this behavioural dichotomy, we are able to derive (and estimate) a structural econometric model of forecast behaviour, which has implications regarding the determinants of analysts' private information endowments and forecast accuracy over the forecast horizon.

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Do Investors Respond to Analysts' Forecast Revisions as if Forecast Accuracy Is All That Matters?

Cited by 385 publications

References 23 publications

Analyst Report Readability

Analyst Report Readability

Competitive Dynamics in Forecasting: The Interaction of Skill and Uncertainty

Estimating private information usage amongst analysts: evidence from UK earnings forecasts

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