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Why do analysts issue forecast revisions inconsistent with prior stock returns? Determinants and consequences
Author(s) -
Dong Xiaobo,
Lin KuanChen,
Graham Roger
Publication year - 2016
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12101
Subject(s) - sign (mathematics) , earnings , stock (firearms) , economics , incentive , stock price , econometrics , financial economics , actuarial science , finance , microeconomics , geography , mathematics , mathematical analysis , paleontology , series (stratigraphy) , biology , archaeology
We examine the informativeness of analyst forecast revisions that are directionally inconsistent with prior stock price movements (sign‐inconsistent revisions). Sign‐inconsistent revisions represent approximately one‐half of the forecast revisions from 1995 through 2010. Our tests indicate that sign‐inconsistent revisions are less informative than are sign‐consistent revisions. Sign‐inconsistent revisions are less likely to be closer to actual earnings realizations and they generate smaller stock price reactions. We also find evidence that sign‐inconsistent revisions are associated with analysts' economic incentives to generate trading volume and their behavioural limitations related to information uncertainty. These results suggest that sign‐inconsistent revisions do not necessarily benefit investors.