Constantina Ph. Constantinou William P. Forbes Len Skerratt
Abstract
We revisit the debate on the interpretation given to prior-year earnings changes in predicting analysts’ future forecast errors. We advance a new specification of this relation that distinguishes between earnings reversion and momentum. For a large UK dataset for the years 1990-1996, we find substantial underreaction, particularly in situations of earnings momentum. We find that underreaction is further increased for cases of downward earnings momentum when the analyst’s merchant bank acts as a broker to the company. We interpret this as a reporting bias caused by an analyst’s response to bad news being compromised.
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Article provided by Financial Management Association in its journal Financial Management.
Volume (Year): 32 (2003) Issue (Month): 2 (Summer) Pages: Download reference. The following formats are available: HTML,
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Handle: RePEc:fma:fmanag:constantinouetal03
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