The Perception of Control and the Level of Overconfidence: Evidence from Analyst Earnings Estimates and Price Targets

The majority of analysts failed to predict the recent stock market downturn at all, or, if they did, then not to its full extent. Apart from the well-known conflicts of interest, forecasts can be distorted by psychological factors. On average, financial analysts forecast earnings and prices with a p...

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Bibliographic Details
Published in:The journal of behavioral finance 2005-09, Vol.6 (3), p.121-128
Main Authors: Stotz, Olaf, von Nitzsch, Rudiger
Format: Article
Language:English
Subjects:
Analysts
Bias
Confidence
Economic forecasting
Finance
Perceptions
Psychological aspects
Studies
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Summary:The majority of analysts failed to predict the recent stock market downturn at all, or, if they did, then not to its full extent. Apart from the well-known conflicts of interest, forecasts can be distorted by psychological factors. On average, financial analysts forecast earnings and prices with a positive bias. This study examines why financial analysts are overconfident, i.e., why they overestimate their abilities to forecast earnings and prices. Our empirical findings support the hypothesis that overconfidence intensifies with an increasing perception of control.
ISSN:1542-7560
1542-7579
DOI:10.1207/s15427579jpfm0603_2