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The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future Returns
Author(s) -
Han Bong H.,
Manry David
Publication year - 2000
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00307
Subject(s) - dispersion (optics) , earnings , economics , equity (law) , financial economics , econometrics , accounting , political science , physics , law , optics
Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return‐on‐equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm‐specific risk not captured by beta and firm size.