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Analyst Bias and Mispricing

Author

Listed:
  • Mark Grinblatt
  • Gergana Jostova
  • Alexander Philipov

Abstract

Cross-sectional forecasts of conservative and optimistic biases in analyst earnings estimates predict a stock's future returns, especially for firms that are hard to value. Trading strategies—whether based on the component of analyst bias that is correlated with major return anomalies or the component that is orthogonal to these anomalies—earn abnormal profits. The prevalence of optimistic analyst earnings estimates and rarity of conservative estimates emerges as a common link between anomaly-generating firm characteristics and subsequent negative alphas. For the vast majority of anomaly strategies, profitability disappears once we control for analyst bias.

Suggested Citation

  • Mark Grinblatt & Gergana Jostova & Alexander Philipov, 2023. "Analyst Bias and Mispricing," NBER Working Papers 31094, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31094
    Note: AP
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • 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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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