Recommendation-Forecast Consistency and Earnings Forecast Quality

Brown, Lawrence D.; Huang, Kelly

doi:10.2308/acch-50482

Cited by 23 publications

(21 citation statements)

References 34 publications

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“…These criteria exclude mixed signals between forecasts and recommendations such as upward changes with sell recommendations or downward changes with buy recommendations. Our forecast‐recommendation pairs are similar to consistent forecast‐recommendation pairs documented by Brown and Huang () although consistency in their paper is defined as both being above (or below) the prevailing consensus. They report that the consistent pairs result in much stronger market reactions.…”

supporting

confidence: 78%

Trading Behavior Prior to Public Release of Analyst Reports: Evidence from Korea

Choi¹,

Jung

Lee³

2015

Contemporary Accting Res

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This paper investigates information leakage from analyst reports prior to their public release. Previous studies document abnormal trading by institutions or short selling before announcement of recommendation changes. Such prerelease abnormal trading is interpreted as evidence of information leakage from analyst reports. However, if sophisticated investors obtain information similar to what analysts have from other sources, abnormal prerelease trading patterns would be observed even if there were no information leakage from analyst reports. This paper, using a unique data set from Korea, aims to determine whether a direct causal link between recommendation changes and prerelease trading exists, by comparing trading behavior of client investors with non‐client investors. We find that abnormal prerelease trading by client investors, especially client institutions, is earlier in timing and greater in magnitude than that of other investor groups, supporting the information leakage hypothesis. We further find that net buying by client institutions and client large individuals is positively associated with firm, analyst, and earnings forecast change variables that influence formulation of recommendation changes and their impacts.

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supporting

confidence: 78%

Trading Behavior Prior to Public Release of Analyst Reports: Evidence from Korea

Choi¹,

Jung

Lee³

2015

Contemporary Accting Res

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“…Our last test variable measures analysts' propensity for consistent outputs. Brown and Huang () document that analysts' earnings forecasts are often inconsistent with their stock recommendations when issued at the same time. They further show that consistent forecast‐recommendation pairs (i.e., when both the forecast and the recommendation are above or below its existing consensus) are more informative to investors than inconsistent pairs.…”

Section: Methodsmentioning

confidence: 99%

Analyst Report Readability

Franco

Hope

Vyas

et al. 2014

Contemporary Accting Res

241

140

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Using an extensive database of 356,463 sell‐side equity analysts' reports from 2002 to 2009, this study is one of the first to analyze the readability of analysts' reports. We first examine the determinants of variations in analyst report readability. Using several proxies for ability, we show that reports are more readable when issued by analysts with higher ability. Second, we test the relation between analysts' report readability and stock trading volume reactions. We find that trading volume reactions increase with the readability of analysts' text, consistent with theoretical models that predict that more precise information (and hence more informative signals) results in investors' initiating trades. These results support the view that the readability of analysts' reports is important to analysts and capital market participants.

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“…Interview research by Imam et al (2008) also suggests a shift among UK analysts towards the use of more rigorous valuation models. A concurrent paper also suggests a role for analysts’ accuracy, through consistency (see Brown and Huang, 2010).…”

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confidence: 99%

The Use of Earnings Forecasts in Stock Recommendations: Are Accurate Analysts More Consistent?

Simon

Curtis

2011

Business Fin & Account

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We examine how analysts' conflicting incentives to be either accurate or optimistic affect their choice to generate stock recommendations with rigorous valuation models or growth-based heuristics. Consistent with prior research the average analyst recommendation is negatively associated with rigorous valuation models and positively associated with growthbased heuristics, we document that these associations are weakest for the most accurate analysts and strongest for the least accurate analysts. We also find evidence consistent with consistency between recommendations and valuation models underlying the positive future returns from trading on the most accurate analysts' recommendations. Our results are consistent with reputation incentives to be accurate mitigating the use of optimistic growth-based models in generating stock recommendations.

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Recommendation-Forecast Consistency and Earnings Forecast Quality

Cited by 23 publications

References 34 publications

Trading Behavior Prior to Public Release of Analyst Reports: Evidence from Korea

Trading Behavior Prior to Public Release of Analyst Reports: Evidence from Korea

Analyst Report Readability

The Use of Earnings Forecasts in Stock Recommendations: Are Accurate Analysts More Consistent?

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