Do investors recognize biases in securities analysts' forecasts?. Issue 4 (27th December 2019)

• Record Type: Journal Article
• Authors: Baird, Philip L.
• Is Part Of: Review of financial economics. Volume 38:Issue 4(2020)
• Page Start: 623
• Page End: 634
• Publication Date: 2019-12-27
• Subjects: analysts' forecast bias -- behavioral bias -- earnings -- market efficiency; Business -- Periodicals; Economics -- Periodicals; Business; Economics; Electronic journals; Periodicals; 332.05
• DOI: 10.1002/rfe.1094
• Languages: English
• ISSNs: 1058-3300

Abstract

Abstract: This study presents direct evidence on the question whether investors recognize the widely documented biases in securities analysts' earnings forecasts. The internal rate of return implied by current stock price and consensus earnings forecast is found to be correlated with indicators of bias in a manner consistent with investors discounting optimistic earnings forecasts at higher rates of return and less optimistic forecasts at lower rates of return. In a departure from studies of excess returns, the evidence in implied returns indicates that investors recognize the biases in analysts' earnings forecasts.