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The Frequency of Financial Analysts' Forecast Revisions: Theory and Evidence about Determinants of Demand for Predisclosure Information
Author(s) -
Holden Craig W.,
Stuerke Pamela S.
Publication year - 2008
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/j.1468-5957.2008.02108.x
Subject(s) - earnings , skewness , economics , econometrics , financial market , empirical evidence , financial economics , efficient market hypothesis , finance , paleontology , philosophy , epistemology , horse , stock market , biology
A fundamental property of a financial market is its degree of price informativeness. A major determinant of price informativeness is predisclosure information collected by financial analysts and then privately disseminated to clients, who make the recommended trades. We develop a dynamic model of the analyst's optimal strategy of forecast revision frequency with endogenous analysts and endogenous traders. We then empirically test the model's predictions. We find that forecast revision frequency is positively associated with earnings variability, trading volume, and earnings response coefficients, and negatively associated with skewness of trading volume. Thus, we find strong empirical support for our dynamic model.