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Market demand for conservative analysts

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  • Hugon, Artur
  • Muslu, Volkan

Abstract

Sell-side analysts, on balance, have incentives to emphasize good company news and downplay the bad, resulting in inefficient forecasts. We conjecture that this behavior generates a demand for forecasts from conservative analysts who unwind this pattern, at least in part, resulting in more efficient forecasts. To investigate, we introduce a measure of analyst conservatism and assess the market reaction to analysts' forecast revisions conditioned on their past levels of conservatism. We find a stronger market reaction to forecast revisions by more conservative analysts, and that this result is heightened for companies with greater institutional investor following.

Suggested Citation

  • Hugon, Artur & Muslu, Volkan, 2010. "Market demand for conservative analysts," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 42-57, May.
    • Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:42-57
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    4. Hoechle, Daniel & Schaub, nic & Schmid, Markus, 2012. "Time Stamp Errors and the Stock Price Reaction to Analyst Recommendation and Forecast Revisions," Working Papers on Finance 1215, University of St. Gallen, School of Finance, revised Sep 2015.
    5. Jani Saastamoinen & Hannu Ojala & Kati Pajunen & Pontus Troberg, 2018. "Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting," Australian Accounting Review, CPA Australia, vol. 28(4), pages 538-555, December.
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    9. Lian Fen Lee & Alvis K. Lo, 2016. "Do Opinions on Financial Misstatement Firms Affect Analysts’ Reputation with Investors? Evidence from Reputational Spillovers," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1111-1148, September.

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