The Forecast Dispersion Anomaly Revisted: Time-Series Forecast Dispersion and the Cross-Section of Stock Returns
46 Pages Posted: 13 Aug 2014 Last revised: 18 Feb 2017
Date Written: September 1, 2016
Abstract
Previous studies use cross-sectional forecast dispersion in examining the relation between forecast dispersion and future stock returns and report an anomalous negative dispersion-return relation. This paper examines how time-series forecast dispersion is distinct in the relation to stock returns from the negative dispersion-return relation. We find that contrary to the previously-known negative dispersion-return relation, there is a strong positive relation between time-series forecast dispersion and stock returns. We also find that time-series forecast dispersion apparently contains systematic risk components and that such risk is priced in stock returns.
Keywords: Time-series forecast dispersion; Cross-sectional forecast dispersion; Analysts' earnings forecasts; Systematic risk components; Idiosyncratic volatility; Macroeconomic conditions
JEL Classification: G12, G14
Suggested Citation: Suggested Citation