Mutual Fund Manager Forecasting Behavior

Posted: 24 Apr 2002

See all articles by Richard H. Willis

Richard H. Willis

Vanderbilt University - Accounting

Abstract

I examine publicly released annual earnings forecasts issued in conjunction with stock recommendations by mutual fund managers of actively managed open-end mutual funds. I find that mutual fund manager annual earnings forecasts systematically overestimate the earnings number later disclosed at the annual earnings announcement. In further analyses, I attempt to distinguish between two explanations for this forecast bias: an untruthful reporting bias (market manipulation) and a truthful cognitive bias (optimism). These explanations generate different predictions about the timing of changes in fundholdings of forecasted securities between the forecast release and annual earnings announcement dates. I interpret my findings as more consistent with an optimism explanation for mutual fund manager annual forecast bias and less consistent with a market manipulation explanation for this bias. I am, however, unable to eliminate an unobservable selection bias either in the decision of the mutual fund manager to report a forecast publicly or in the media's decision to publish that forecast as an explanation for my finding that mutual fund manager forecasts are biased.

Keywords: Mutual fund managers, earnings forecasts, optimism

JEL Classification: M41, G14

Suggested Citation

Willis, Richard H., Mutual Fund Manager Forecasting Behavior. Available at SSRN: https://ssrn.com/abstract=308639

Richard H. Willis (Contact Author)

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States
615-343-1050 (Phone)
615-343-7177 (Fax)

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