Returns to Informational Advantages: The Case of Analysts' Forecast Revisions
20 Pages Posted: 5 Jun 2014
Date Written: April 3, 1980
Abstract
This paper evaluates whether the primary and secondary dissemination of earnings forecast revisions by security analysts is reflected in security prices. Security prices were used to determine the profitability (before the cost of search) of trading strategies based on the nonpublic knowledge of forecast revisions. For a sample of 288 weekly earnings forecast revisions, the results were consistent with the hypothesis that early knowledge of forecast revisions could be used to form profitable trading strategies. Furthermore, the secondary dissemination of forecasts continued to have information content at the point of disclosure. These results are inconsistent with the strong form, but consistent with the semi-strong form, of market efficiency. Furthermore, the information contemporaneously available from public sources did not generate equivalently profitable trading rules, indicating that forecast revisions were not deducible from other publicly available information. Finally, some general public policy implications concerning mandatory disclosure of forecasts were drawn.
Keywords: earnings forecast, forecast revision, private information, accuracy
JEL Classification: M40 , C53, D84, C22, E17
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Can Investors Profit from the Prophets? Consensus Analyst Recommendations and Stock Returns
By Brad M. Barber, Reuven Lehavy, ...
-
Security Analysts' Career Concerns and Herding of Earnings Forecasts
By Jeffrey D. Kubik, Amit Solomon, ...
-
By Patricia Dechow, Amy P. Hutton, ...
-
Analyzing the Analysts: When Do Recommendations Add Value?
By Narasimhan Jegadeesh, Joonghyuk Kim, ...
-
An Empirical Analysis of Analysts' Target Prices: Short Term Informativeness and Long Term Dynamics
By Alon Brav and Reuven Lehavy
-
How Do Analysts Use Their Earnings Forecasts in Generating Stock Recommendations?