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Analyst Forecasting Ability and the Stock Price Reaction to Forecast Revisions

Author

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  • Chul W. Park

    (The Hong Kong University of Science & Technology)

  • Earl K. Stice

    (Brigham Young University)

Abstract

We empirically identifysuperior analysts using their past forecasting track record fora specific firm's earnings and demonstrate that subsequent forecastannouncements by these superior analysts have a greater impacton security prices than do the forecasts of other analysts. Wefind that, in our sample, the price effects of this firm-specificforecasting ability do not spill over to other firms followedby the same analyst. We also demonstrate that an analyst's forecastingability with respect to the earnings of a certain firm is relativelymore important in the period immediately preceding an earningsannouncement by that firm.

Suggested Citation

  • Chul W. Park & Earl K. Stice, 2000. "Analyst Forecasting Ability and the Stock Price Reaction to Forecast Revisions," Review of Accounting Studies, Springer, vol. 5(3), pages 259-272, September.
    • Handle: RePEc:spr:reaccs:v:5:y:2000:i:3:d:10.1023_a:1009668711298
    DOI: 10.1023/A:1009668711298
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    References listed on IDEAS

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    1. Brown, Lawrence D. & Hagerman, Robert L. & Griffin, Paul A. & Zmijewski, Mark E., 1987. "An evaluation of alternative proxies for the market's assessment of unexpected earnings," Journal of Accounting and Economics, Elsevier, vol. 9(2), pages 159-193, July.
    2. Lev, B, 1989. "On The Usefulness Of Earnings And Earnings Research - Lessons And Directions From 2 Decades Of Empirical-Research," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 27, pages 153-192.
    3. Stickel, Scott E, 1992. "Reputation and Performance among Security Analysts," Journal of Finance, American Finance Association, vol. 47(5), pages 1811-1836, December.
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    Cited by:

    1. Mark T. Bradshaw & Lawrence D. Brown & Kelly Huang, 2013. "Do sell-side analysts exhibit differential target price forecasting ability?," Review of Accounting Studies, Springer, vol. 18(4), pages 930-955, December.
    2. Andrew C. Call & Shuping Chen & Yen H. Tong, 2009. "Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts?," Review of Accounting Studies, Springer, vol. 14(2), pages 358-391, September.
    3. Lawrence D. Brown & Artur Hugon, 2009. "Team earnings forecasting," Review of Accounting Studies, Springer, vol. 14(4), pages 587-607, December.

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