Investor Overreaction to Analyst Reference Points
AbstractIn this paper, I document analysts’ reliance on the company issued guidance range as a frame of reference in making their EPS forecasts. Analysts who use the guidance range as a reference may limit information diffusion to market participants by keeping their true beliefs private. I therefore analyze the stock market’s reaction to analyst forecasting decisions, and find that investors overreact to forecasts that are exactly equal to the minimum or maximum of the guidance range, but do not overreact to other types of forecasts. The evidence presented is most consistent with overreaction driven by overconfident investors who trade too much in the face of information uncertainty.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1319.
Date of creation: 2013
Date of revision:
Overreaction; Stock Returns; Reference Point; Analyst Earnings Forecasts;
Find related papers by JEL classification:
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- 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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