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Are Analysts Overoptimistic about the Prospects of Sin Firms?

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  • Jin Zhang
  • Haeyoung Shin

Abstract

We investigate the association between the bias and accuracy of consensus analysts¡¯ earnings forecasts and whether a firm is a sin firm or not. We measure analyst forecast bias as the difference between the consensus earnings forecast and the actual earnings, scaled by the stock price. We measure analyst forecast accuracy as the negative of the absolute value of the difference between the firms¡¯ forecasted and actual earnings, scaled by the stock price. We find a positive association between the level of forecast optimism and sin firm membership. We find a negative association between the level of forecast accuracy and sin firm membership. Overall, these results imply that analysts tend to issue over-optimistic and less accurate earnings forecasts on sin firms.

Suggested Citation

  • Jin Zhang & Haeyoung Shin, 2017. "Are Analysts Overoptimistic about the Prospects of Sin Firms?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(4), pages 99-106, October.
    • Handle: RePEc:jfr:ijfr11:v:8:y:2017:i:4:p:99-106
    DOI: 10.5430/ijfr.v8n4p99
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