Premium
Analyst Pessimism and Forecast Timing
Author(s) -
Barron Orie E.,
Byard Donal,
Liang Lihong
Publication year - 2013
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/jbfa.12031
Subject(s) - pessimism , earnings , optimism , economics , consensus forecast , term (time) , forecast error , forecast period , econometrics , actuarial science , financial economics , finance , psychology , social psychology , cash flow , philosophy , physics , epistemology , cash flow statement , quantum mechanics
In this study, we show that on average relatively pessimistic analysts tend to reveal their earnings forecasts later than other analysts. Further, we find this forecast timing effect explains a substantial proportion of the well‐known decrease in consensus analyst forecast optimism over the forecast period prior to earnings announcements, which helps explain why analysts’ longer term earnings forecasts are more optimistically biased than their shorter term forecasts. We extend the theory of analyst self‐selection regarding their coverage decisions to argue that analysts with a relatively pessimistic view–compared to other analysts–are more reluctant to issue their earnings forecasts, with the result that they tend to defer revealing their earnings forecasts until later in the forecasting period than other analysts.