Download or read book Quantifying Cognitive Biases in Analyst Earnings Forecasts written by Geoffrey C. Friesen and published by . This book was released on 2003 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a formal model of analyst earnings forecasts that discriminates between rational behavior and that induced by cognitive biases. In the model, analysts are Bayesians who issue sequential forecasts that combine new information with the information contained in past forecasts. The model offers a number of testable implications that allow us to detect cognitive biases, and also to quantify their magnitude. We estimate the model and find strong evidence that analysts are overconfident about the precision of their own information and also subject to cognitive dissonance bias. We examine the influence of the relative amount of private information as a measure of ambiguity on the magnitude of the biases. The variation in overconfidence between the low- and high-ambiguity groups is consistent with the well-established variations documented in the psychological literature. We also demonstrate a relationship between book-to-market ratios and cognitive bias.

Download or read book An Empirical Investigation of Bias in Analysts Earnings Forecasts written by Hakan Saraoglu and published by . This book was released on 1996 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Bias in European Analysts Earnings Forecasts written by Stan Beckers and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting company earnings is a difficult and hazardous task. In an efficient market where analysts learn from past mistakes, there should be no persistent and systematic biases in consensus earnings accuracy. Previous research has already established how some (single) individual-company characteristics systematically influence forecast accuracy. So far, however, the effect on consensus earnings biases of a company's sector and country affiliation combined with a range of other fundamental characteristics has remained largely unexplored. Using data for 1993-2002, this article disentangles and quantifies for a broad universe of European stocks how the number of analysts following a stock, the dispersion of their forecasts, the volatility of earnings, the sector and country classification of the covered company, and its market capitalization influence the accuracy of the consensus earnings forecast.

Download or read book Financial Analysts Forecasts and Stock Recommendations written by Sundaresh Ramnath and published by Now Publishers Inc. This book was released on 2008 with total page 125 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Analysts' Forecasts and Stock Recommendations reviews research related to the role of financial analysts in the allocation of resources in capital markets. The authors provide an organized look at the literature, with particular attention to important questions that remain open for further research. They focus research related to analysts' decision processes and the usefulness of their forecasts and stock recommendations. Some of the major surveys were published in the early 1990's and since then no less than 250 papers related to financial analysts have appeared in the nine major research journals that we used to launch our review of the literature. The research has evolved from descriptions of the statistical properties of analysts' forecasts to investigations of the incentives and decision processes that give rise to those properties. However, in spite of this broader focus, much of analysts' decision processes and the market's mechanism of drawing a useful consensus from the combination of individual analysts' decisions remain hidden in a black box. What do we know about the relevant valuation metrics and the mechanism by which analysts and investors translate forecasts into present equity values? What do we know about the heuristics relied upon by analysts and the market and the appropriateness of their use? Financial Analysts' Forecasts and Stock Recommendations examines these and other questions and concludes by highlighting area for future research.

Download or read book Managerial Behavior and the Bias in Analysts Earnings Forecasts written by Lawrence D. Brown and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managerial behavior differs considerably when managers report quarterly profits versus losses. When they report profits, managers seek to just meet or slightly beat analyst estimates. When they report losses, managers do not attempt to meet or slightly beat analyst estimates. Instead, managers often do not forewarn analysts of impending losses, and the analyst's signed error is likely to be negative and extreme (i.e., a measured optimistic bias). Brown (1997 Financial Analysts Journal) shows that the optimistic bias in analyst earnings forecasts has been mitigated over time, and that it is less pronounced for larger firms and firms followed by many analysts. In the present study, I offer three explanations for these temporal and cross-sectional phenomena. First, the frequency of profits versus losses may differ temporally and/or cross-sectionally. Since an optimistic bias in analyst forecasts is less likely to occur when firms report profits, an optimistic bias is less likely to be observed in samples possessing a relatively greater frequency of profits. Second, the tendency to report profits that just meet or slightly beat analyst estimates may differ temporally and/or cross-sectionally. A greater tendency to 'manage profits' (and analyst estimates) in this manner reduces the measured optimistic bias in analyst forecasts. Third, the tendency to forewarn analysts of impending losses may differ temporally and/or cross-sectionally. A greater tendency to 'manage losses' in this manner also reduces the measured optimistic bias in analyst forecasts. I provide the following temporal evidence. The optimistic bias in analyst forecasts pertains to both the entire sample and the losses sub-sample. In contrast, a pessimistic bias exists for the 85.3% of the sample that consists of reported profits. The temporal decrease in the optimistic bias documented by Brown (1997) pertains to both losses and profits. Analysts have gotten better at predicting the sign of a loss (i.e., they are much more likely to predict that a loss will occur than they used to), and they have reduced the number of extreme negative errors they make by two-thirds. Managers are much more likely to report profits that exactly meet or slightly beat analyst estimates than they used to. In contrast, they are less likely to report profits that fall a little short of analyst estimates than they used to. I conclude that the temporal reduction in optimistic bias is attributable to an increased tendency to manage both profits and losses. I find no evidence that there exists a temporal change in the profits-losses mix (using the I/B/E/S definition of reported quarterly profits and losses). I document the following cross-sectional evidence. The principle reason that larger firms have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that larger firms have relatively less optimistic bias is that their managers are relatively more likely to report profits that slightly beat analyst estimates. The principle reason that firms followed by more analysts have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that firms followed by more analysts have relatively less optimistic bias is that their managers are relatively more likely to report profits that exactly meet analyst estimates or beat them by one penny. I find no evidence that managers of larger firms or firms followed by more analysts are relatively more likely to forewarn analysts of impending losses. I conclude that cross-sectional differences in bias arise primarily from differential 'loss frequencies,' and secondarily from differential 'profits management.' The paper discusses implications of the results for studies of analysts forecast bias, earnings management, and capital markets. It concludes with caveats and directions for future research.

Download or read book Bias in Analysts Earnings Forecasts written by Seung-Woog (Austin) Kwag and published by . This book was released on 2003 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: If either economic incentives or psychological phenomena cause the bias in analysts' forecasts to persist long enough, it would be potentially discoverable and exploitable by investors. quot;Exploitationquot; in this context implies that investors, through examination of historical forecasting performance, can more or less reliably estimate the direction and extent of bias, and impute unbiased estimates for themselves, given analysts' forecasts. The absence of persistence in forecast errors would suggest that analysts' own behavior ultimately quot;self-correctsquot; within a time frame that eliminates the possibility that the patterns could be exploited by investors. We use two look-back methods that capture salient features of analysts' past forecasting behavior to form quintile portfolios that describe the range of analysts' forecasting behavior. Parametric and nonparametric tests are performed to determine whether the two portfolio formation methods provide predictive power with respect to subsequent forecast errors. The findings support a conclusion that analysts' behaviors in both optimistic and pessimistic extremes do not entirely self-correct, leaving open the possibility that investors may find historical forecast errors useful in making inferences about current forecasts.

Download or read book Three Essays on Analyst Earnings Forecast written by Wenjuan Xie and published by . This book was released on 2008 with total page 138 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on Self selection Bias in Consensus Analysts Forecasts written by Bokhyeon Baik and published by . This book was released on 2003 with total page 244 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Share Pledging and Bias in Analyst Earnings Forecasts written by 徐悠 and published by . This book was released on 2020 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Consistent Earnings Surprises and Behavioral Biases in Analyst Earnings Forecasts written by Guojin Gong and published by . This book was released on 2005 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Bias in Analysts Earnings Forecasts as an Explanation for the Long Run Underperformance of Stocks Following Equity Offerings written by Ashiq Ali and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: For firms conducting initial or seasoned equity offerings, recent studies document that their stock returns are lower than those of non-issuers for about five years following the issue, and this underperformance is greater for small issuers. This study shows that analysts' earnings forecasts have greater optimistic bias for issuers than for non-issuers during the five year period. Moreover, the incremental optimistic bias is greater for small issuers. This result is consistent with the Loughran and Ritter (1995) conjecture that one of the reasons for the long-run underperformance of issuers' stocks is optimistic bias in the market's expectations of these firms' earnings.

Download or read book The Black Swan written by Nassim Nicholas Taleb and published by Random House Digital, Inc.. This book was released on 2009-10-13 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the author's point of view, a black swan is an improbable event with three principal characteristics - It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don't know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the 'impossible'.

Download or read book Incentives Or Irrationality International Evidence from the Impact of Individualism on Analyst Forecast Bias written by Claudia Qi and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a unique dataset that identifies the locations of 19,832 financial analysts covering 21,885 firms from 49 countries during 1996-2013, we find that individualism of analysts' country of residence is negatively associated with their earnings forecast optimism and positively associated with their forecast accuracy. Using multiple proxies for economic incentives and cognitive biases, we find that individualism affects analyst forecast optimism and accuracy through the economic incentives that analysts face, rather than their cognitive biases (irrationality). Our results highlight the importance for regulators and investors to factor in culture values when battling against biased analyst research.

Download or read book Biased Forecasts or Biased Earnings The Role of Reported Earnings in Explaining Apparent Bias and Over Underreaction in Analysts Earnings Forecasts written by Jeffery S. Abarbanell and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We demonstrate the role of three empirical properties of cross-sectional distributions of analysts' forecast errors in generating evidence pertinent to three important and heretofore separately analyzed phenomena studied in the analyst earnings forecast literature: purported bias (intentional or unintentional) in analysts' earnings forecasts, forecaster over/underreaction to information in prior realizations of economic variables, and positive serial correlation in analysts' forecast errors. The empirical properties of interest include: the existence of two statistically influential asymmetries found in the tail and the middle of typical forecast error distributions, the fact that a relatively small number of observations comprise these asymmetries and, the unusual character of the reported earnings benchmark used in the calculation of the forecast errors that fall into the two asymmetries that is associated with firm recognition of unexpected accruals. We discuss competing explanations for the presence of these properties of forecast error distributions and their implications for conclusions about analyst forecast rationality that are pertinent to researchers, regulators, and investors concerned with the incentives and judgments of analysts.Previously titled quot;Biased Forecasts or Biased Earnings? The Role of Earnings Management in Explaining Apparent Optimism and Inefficiency in Analysts' Earnings Forecastsquot.

Download or read book Cognitive Workload and Fatigue in Financial Decision Making written by Stephen J. Guastello and published by Springer. This book was released on 2015-12-14 with total page 138 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents new theory and empirical studies on the roles of cognitive workload and fatigue on repeated financial decisions. The mathematical models that are developed here utilize two cusp catastrophe functions for discontinuous changes in performance and integrate objective measures of workload, subjective experiences, and individual differences among the decision makers. Additional nonlinear dynamical processes are examined with regard to persistence and antipersistence in decisions, entropy, further explanations of overall performance, and the identification of risk-optimization profiles for long sequences of decisions.

Download or read book Is Analyst Optimism Intentional Additional Evidence on the Existence of Reporting and Selection Bias in Analyst Earnings Forecasts written by Irene Karamanou and published by . This book was released on 2001 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines whether the documented bias in analyst earnings forecasts is intentional by investigating whether analysts account for the market's ability to adjust for the bias when forming their forecasts. The procedure follows three steps. First, I estimate on a firm-specific basis the forecast error for each firm decomposed in its two parts, bias and underreaction. I then employ an ERC model for each firm modified to include the expected bias and underreaction from step 1. The coefficient on the expected bias variable serves as the proxy for the market's ability to adjust for the bias. Finally I include this proxy in a cross-sectional regression explaining analyst forecast error. Finding a relationship between bias and the proxy for the market's ability to adjust for the bias will provide evidence on the joint hypothesis that (a) analysts know what the ability of the market to undo the bias for a firm is and (b) they form or issue their forecasts accordingly. A positive relationship is consistent with the existence of both reporting and selection bias. A negative relationship is consistent with the existence of reporting bias. I find that analysts reduce the bias in their announced forecasts as the market's ability to adjust for the bias increases. This result provides direct evidence that analysts knowingly bias their forecasts. The negative relationship between the market's ability to adjust for the bias and the level of bias in the forecasts provides support for the existence of reporting bias in particular. Controlling for the sign of bias (optimistic vs. pessimistic) shows that optimistic bias is intentional. Even though I do not find evidence that pessimistic bias is intentional this may be due to the structural design of the tests. Finally, even though I find that the market seems to adjust for analyst underreaction, I do not find evidence that analyst underreaction is intentional.

Download or read book The Effect of Issuing Biased Earnings Forecasts on Analysts Access to Management and Survival written by Bin Ke and published by . This book was released on 2006 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to Regulation Fair Disclosure. Analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers. The effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard-to-predict earnings. The above results hold regardless of whether a brokerage firm has investment banking business or not. These results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management's private information.