Does Past Success Lead Analysts to Become Overconfident?

Management Science, Forthcoming

Posted: 28 Nov 2005

See all articles by Lior Menzly

Lior Menzly

University of Chicago - Booth School of Business

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Abstract

This paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction. This phenomenon is economically and statistically meaningful. The results are robust to different estimation techniques and different control variables. Our findings are consistent with an attribution bias that leads analysts who have experienced a short-lived success to become overconfident in their ability to forecast future earnings.

Keywords: Analysts, Forecasts, Overconfidence, Behavioral finance, Behavioral economics, Accounting

JEL Classification: M41, G29

Suggested Citation

Menzly, Lior and Hilary, Gilles, Does Past Success Lead Analysts to Become Overconfident?. Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=855325 or http://dx.doi.org/10.2139/ssrn.261476

Lior Menzly

University of Chicago - Booth School of Business ( email )

1101 East 58th Street
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Chicago, IL 60637
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(773) 702-7420 (Phone)
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Gilles Hilary (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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