Analysts' forecasts as proxies for investor beliefs in empirical research

We analyze how analysts' forecasts relate to investor beliefs and describe the implications of these relations for price and volume reactions to earnings surprises. We show that dispersion among forecasts does not fully capture investor uncertainty. We also show how the relations between market...

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Bibliographic Details
Published in:Journal of accounting & economics 1995-07, Vol.20 (1), p.31-60
Main Authors: Abarbanell, Jeffery S., Lanen, William N., Verrecchia, Robert E.
Format: Article
Language:English
Subjects:
Analysts' forecasts
Earnings forecasting
Economic models
Empirical research
Forecasts
Information acquisition
Investment
Rational expectations
Securities trading
Statistical analysis
Studies
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Summary:We analyze how analysts' forecasts relate to investor beliefs and describe the implications of these relations for price and volume reactions to earnings surprises. We show that dispersion among forecasts does not fully capture investor uncertainty. We also show how the relations between market reactions and forecast properties differ under the alternative assumptions of exogenous and endogenous private information acquisition. Finally, the analysis suggests refined tests for volume reactions at the time of an announcement. Our results indicate that the model is useful for understanding and interpreting empirical work and developing empirical tests of market reactions to announcements.
ISSN:0165-4101
1879-1980
DOI:10.1016/0165-4101(94)00392-I