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A new approach to predicting analyst forecast errors: Do investors overweight analyst forecasts?

  • So, Eric C.
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    I provide evidence that investors overweight analyst forecasts by demonstrating that prices do not fully reflect predictable components of analyst errors, which conflicts with conclusions in prior research. I highlight estimation bias in traditional approaches and develop a new approach that reduces this bias. I estimate characteristic forecasts that map current firm characteristics into forecasts of future earnings. Contrasting characteristic and analyst forecasts predicts analyst forecast errors and revisions. I find abnormal returns to strategies that sort firms by predicted forecast errors, consistent with investors overweighting analyst forecasts and predictable biases in analyst forecasts influencing the information content of prices.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X13000329
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 108 (2013)
    Issue (Month): 3 ()
    Pages: 615-640

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    Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:615-640
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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