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Why Do Analysts Disagree ?

Author

Listed:
  • Jean-Sébastien Michel
  • J. Ari Pandes

Abstract

This paper finds that about one-quarter of analyst forecast dispersion and one-half of the dispersion-return relationship between 1985 and 2012 are explained by analyst overconfidence. In particular, the firm’s analyst overconfidence mean and analyst overconfidence dispersion are the two most significant determinants of analyst forecast dispersion. Together, these two variables capture 77% of the explained variation in analyst forecast dispersion when all known determinants are considered. With respect to the dispersion-return relationship, the analyst forecast dispersion predicted by analyst overconfidence leads to a monthly hedging portfolio profit of 0.35% compared to a profit of 0.37% for the analyst forecast dispersion not predicted by analyst overconfidence.

Suggested Citation

  • Jean-Sébastien Michel & J. Ari Pandes, 2013. "Why Do Analysts Disagree ?," Cahiers de recherche 1305, CIRPEE.
    • Handle: RePEc:lvl:lacicr:1305
    as

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    File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2013/CIRPEE13-05.pdf
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    References listed on IDEAS

    as
    1. Berkman, Henk & Dimitrov, Valentin & Jain, Prem C. & Koch, Paul D. & Tice, Sheri, 2009. "Sell on the news: Differences of opinion, short-sales constraints, and returns around earnings announcements," Journal of Financial Economics, Elsevier, vol. 92(3), pages 376-399, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Analyst Overconfidence; Self-Attribution Bias; Analyst Forecast Dispersion; Stock Returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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