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Analyst Underreaction in the United Kingdom


  • Constantina Ph. Constantinou
  • William P. Forbes
  • Len Skerratt


We revisit the debate on the interpretation given to prior-year earnings changes in predicting analysts’ future forecast errors. We advance a new specification of this relation that distinguishes between earnings reversion and momentum. For a large UK dataset for the years 1990-1996, we find substantial underreaction, particularly in situations of earnings momentum. We find that underreaction is further increased for cases of downward earnings momentum when the analyst’s merchant bank acts as a broker to the company. We interpret this as a reporting bias caused by an analyst’s response to bad news being compromised.

Suggested Citation

  • Constantina Ph. Constantinou & William P. Forbes & Len Skerratt, 2003. "Analyst Underreaction in the United Kingdom," Financial Management, Financial Management Association, vol. 32(2), Summer.
  • Handle: RePEc:fma:fmanag:constantinouetal03

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