Differences of Opinion and the Cross Section of Stock Returns

We provide evidence that stocks with higher dispersion in analysts' earnings forecasts earn lower future returns than otherwise similar stocks. This effect is most pronounced in small stocks and stocks that have performed poorly over the past year. Interpreting dispersion in analysts' forecasts as a proxy for differences in opinion about a stock, we show that this evidence is consistent with the hypothesis that prices will reflect the optimistic view whenever investors with the lowest valuations do not trade. By contrast, our evidence is inconsistent with a view that dispersion in analysts' forecasts proxies for risk.     

Information misweighting and the cross-section of stock recommendations

This paper provides evidence that analysts whose earnings forecast revisions showed signs of greater exaggeration in the past make recommendation changes that lead to lower abnormal returns than their peers. Interpreting stock recommendations as a forecast of future abnormal returns, I show that this evidence is consistent with the hypothesis that analysts who typically exaggerate or overstate the weight of their private information when issuing forecasts also do so when making recommendations. The paper also shows that past earnings forecasts provide incremental information about analysts' recommending behavior beyond that contained in past recommendations.     

Investor and (Value Line) Analyst Underreaction to Information about Future Earnings: The Corrective Role of Non-Earnings-Surprise Information

Prior research suggests that financial analysts' earnings forecasts and stock prices underreact to earnings news. This paper provides evidence that analysts and investors correct this underreaction in response to the next earnings announcement and to other (non-earnings-surprise) information available between earnings announcements. Our evidence also suggests that analysts and investors underreact to information reflected in analysts' earnings forecast revisions and that non-earnings-surprise information helps correct this underreaction as well. Controlling for corrective non-earnings-surprise information significantly increases estimates of the degree to which analysts' forecasting behavior can explain drifts in returns following both earnings announcements and analysts' earnings forecast revisions.     

Financial Analysts' Earnings Forecast Dispersion and Intraday Stock Price Variability Around Quarterly Earnings Announcements

This study investigates the relationship between the dispersion of analysts' earnings forecasts and stock price variability around quarterly earnings announcements. Consistent with theoretical predictions, the empirical analysis shows that stock price variability at the time of earnings announcements is positively related to the degree of analysts' predisclosure earnings forecast dispersion. Additionally, firms with high levels of forecast dispersion exhibit significant increases in price variability for longer periods prior to and following earnings announcements than do firms with low levels of forecast dispersion. These results suggest that there is information about the earnings announcement that becomes available to at least a subset of investors prior to the earnings release and that market participants take different amounts of time to process the information conveyed by the earnings announcement.     

剩余收益模型与股票未来回报

本文采用Hou et al.(2012)公司基本面盈余预测模型并结合剩余收益模型对上市公司的内在价值进行估计,并分析内在价值与市价比率(V/P)与股票未来回报之间的关系。我们发现基于V/P分组的投资组合,在未来一至三年规模调整的持有超额回报套利分别达到15.2%、37.9%和55.9%;在控制了市账比等因素以后,V/P对股票未来回报仍然具有显著的预测作用。本文的研究克服了以往文献中运用证券分析师盈余预测进行剩余收益模型估值的内在局限,并提供了我国资本市场背景下切实可行的基于剩余收益模型估值的投资组合策略。     

Understanding analysts' use of stock returns and other analysts' revisions when forecasting earnings

We investigate analysts' use of stock returns and other analysts' forecast revisions in revising their own forecasts after an earnings announcement. We find that analysts respond more strongly to these signals when the signals are more informative about future earnings changes. Although analysts underreact to these signals on average, we find that analysts who are most sensitive to signal informativeness achieve superior forecast accuracy relative to their peers and have a greater influence on the market. The results suggest that the ability to extract information from the actions of others serves as one source of analyst expertise.     

The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future Returns

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.     

Investors' Use of Historical Forecast Bias to Adjust Current Expectations

We explore the extent to which investor response to earnings information differs in the presence of historical bias in earnings forecasts. Overall, the results are consistent with the notion that investors take historical forecast bias into account when interpreting information in earnings announcements and that the market's reaction to forecast errors is larger (less negative) when forecasts are historically more optimistic and suggests that the functional form commonly used in the earnings response literature does not appropriately capture the effect of real unexpected earnings information (i.e., investors' expectation errors as opposed to analysts' forecast errors) on stock returns.     

Economic Value Added,Future Accounting Earnings,and Financial Analysts' Earnings Per Share Forecasts

Empirical research to date on the relative effectiveness of Economic Value Added (EVA) and earnings per share (EPS) as measures of firm performance for stock valuation has been mixed. In contrast to prior research, which primarily focuses on the correspondence of these measures with shareholder value and changes therein, we examine their relative effectiveness in predicting future earnings and their role in enhancing the accuracy of analysts' forecasts. Our results indicate that EVA contains information that is incremental to EPS in predicting future earnings. In addition, we find that despite this potential for EVA to add incremental value to analysts' forecasts of future earnings, analysts do not use the information in reported EVA appropriately, but appear rather to overweigh it.     

An Empirical Analysis of Qualitative Management Earnings Forecasts

Despite efforts by the Securities and Exchange Commission (SEC) to encourage corporate disclosure of quantitative management earnings projections, only a small fraction of firms voluntarily do so. Instead of quantitative estimates, a large number of firms choose to disclose qualitative (verbal) assessments of their earnings prospects. This paper is a study of the information characteristics and the usefulness of this alternative form of forecast disclosure to investors. The study examines a sample of qualitative forecast statements from the 1979–1985 period and finds associations between these forecasts and percentage changes in realized earnings per share, the direction of financial analysts' forecast revisions following the disclosure of these forecasts, and abnormal stock returns on the date of their disclosure. These associations are, however, shown to be more significant for negative (bad news) than for positive (good news) forecasts.     

The Value Relevance of Management Forecasts and Their Impact on Analysts' Forecasts: Empirical Evidence From Japan

A major financial disclosure feature in Japan is that stock exchanges require firms to provide next year's earnings forecasts. This study investigates the value relevance of Japanese management earnings forecasts and their impact on analysts' earnings forecasts. First, the value relevance of management forecasts is investigated using a valuation framework provided by Ohlson (2001 ), in which firm value is expressed as a function of book value, current earnings and next year's expected earnings. The analysis yields that of the three accounting variables examined, management forecasts have the highest correlation and incremental explanatory power with stock price.
Next, the impact of management forecasts on analysts' forecasts is examined. The results show that more than 90% of changes in analysts' forecasts are explained by management forecasts alone. Further analysis reveals that the heavy dependence of financial analysts on management forecasts in formulating their own forecasts may partially be attributed to the relatively high accuracy of management forecasts. At the same time, financial analysts also somewhat modify management forecasts when certain financial factors indicate that the credibility of management forecasts is in doubt.
Overall, this study presents empirical evidence that Japanese management forecasts provide useful information for the market and have a significant influence on analysts' forecasts.     

财务分析师盈利预测的投资价值:来自深沪A股市场的证据

本文研究了中国股票市场上财务分析师的盈利预测信息对投资者是否有价值。我们发现,可以利用公开的盈利预测制定可获利的套头交易策略。套头交易的回报率不仅在统计意义上显著大于零,而且在经济意义上也是显著的。这些结果不受不同的检验方法影响,也无法为我们所考虑到的风险因素所解释。本文的发现说明了中国的股票市场尚未达到Fama(1970)意义上的半强式有效,投资者在投资决策时可以利用分析师的盈利预测以提高其投资的回报。此外,本文的结果也有助于回答中国的财务分析师是否具有专业胜任能力这一颇有争议的问题。     

证券分析师VS统计模型:证券分析师盈余预测的相对准确性及其决定因素

本文使用2005年35家券商对我国上市公司做出的每股盈余预测数据,考察了证券分析师盈余预测相对于统计模型的相对准确性及其决定因素。我们发现,我国证券分析师做出的盈余预测,同以年度历史数据为基础的统计模型得出的盈余预测相比,预测误差较小,证券分析师盈余预测具有一定的优势;但同某些以季度历史数据为基础的统计模型得出的盈余预测相比,预测误差较大,证券分析师盈余预测不具有优势。我们同时考察了决定证券分析师盈余预测相对准确性的决定因素。我们发现,公司每股盈余的波动性越大,公司上市越晚,跟踪公司的分析师越多,证券分析师的优势就越大。我们的研究对证券分析师以及投资者都有一定的启示作用。     

Does the Stock Market Fully Appreciate the Implications of Leading Indicators for Future Earnings? Evidence from Order Backlog

Although leading indicators are becoming increasingly important for equity valuation, disclosures of such indicators suffer from the absence of GAAP related guidance on content and presentation. We explicitly examine (i) whether one leading indicator—order backlog—predicts future earnings, and (ii) whether market participants correctly incorporate such predictive ability in determining share prices. We find that the stock market overweights the contribution of order backlog in predicting future earnings, and a hedge strategy that exploits such overweighting generates significant future abnormal returns. However, such mispricing is not due to analysts' inability to incorporate order backlog into their earnings forecasts.     

Stock option compensation and the likelihood of meeting analysts' quarterly earnings targets

One role of stock options in executive compensation packages is to counterbalance the inherently short-term orientation of base salary and annual bonuses. Managerial compensation plans frequently include stock options in order to better align the interests of managers and outside shareholders and reduce agency problems. However, since option values are sensitive to fluctuations in stock prices, and investors reward firms that meet or exceed earnings expectations, executives of firms with sizable option components in their compensation plans have increased incentives to report earnings that meet or exceed analysts' forecasts. We show that the propensity to meet or exceed analysts' quarterly earnings forecasts is positively related to the use of options in top executives' compensation plans. Further, firms that employ relatively more options in their compensation plans more frequently report earnings surprises that exceed analysts' forecast by small amounts (between 0 and 1 cent per share). These results suggest that the use of stock-based compensation intensifies top executives' focus on financial analysts' short-term earnings forecasts.     

中国上市公司自愿业绩预告动机研究

随着业绩预告制度的实施和演进,我国资本市场上逐步出现了越来越多的上市公司自愿业绩预告,这对于缓解管理层与投资者、机构投资者与中小投资者之间的信息不对称具有重要意义。那么,是什么因素激励上市公司管理层自愿披露业绩预告?通过借鉴西方的自愿信息披露理论,并结合我国转轨经济的制度背景,本文提出了我国上市公司自愿业绩预告的三类动机:资本市场交易、管理层股票收益和管理层能力信号传递,并以2001-2008年我国上市公司业绩预告数据为研究样本对此进行了检验。研究结果显示,融资需求高、管理者利益协同程度高、会计业绩好的上市公司更有动机自愿披露业绩预告,并且国有相对于非国有上市公司自愿披露动机更弱。     

EARNINGS EXPECTATIONS, FIRM SIZE, AND THE INFORMATIVENESS OF STOCK PRICES

The notion that prices impound a wide array of information, including market expectations, has led to earnings forecast models conditioned on prices. Yet, presumably, analysts' forecasts capture both public information and certain private information not previously impounded in prices. Accordingly, price-based models are seemingly an inefficient, and less effective, source of expecta-tions. This article investigates this hypothesis using financial analysts', price-based, and naive forecasts. Results indicate that analysts' forecasts (1) are at least as accurate as price-based and naive models, and (2) yield better expectations for market tests relating returns and earnings. These inferences are robust across different information environments. The evidence suggests that analysts either possess private information or are more effective information processors, or both.     

The transmission of corporate financial information across national borders and equity market linkages

Although intra-industry earnings information transfers have been documented within individual nations, little or no attention has been given to examining whether these transfers also exist across national boundaries. This study sets out to investigate the issue by analyzing the abnormal stock market returns of British firms at the time of annual earnings announcements by U.S. corporations and the returns of U.S. firms at the time of profit announcements by British companies. Information transfers are also tested by examining whether earnings surprises of companies in one country are related to revisions in investment analysts' consensus profit forecasts of non-reporting firms in the other country. The accuracies of revisions in consensus earnings estimates are investigated. Evidence of transnational information transfers from the United States to Britain is found and the degree and level of the signal is related to various firm and industry characteristics including correlations in reported profits.     

A Comparative Analysis of Earnings Forecasts in Europe

This study examines the accuracy and bias of financial analysts' EPS forecasts in nine European countries during 1987 to 1995. There are significant differences between the countries which may be due to the differences in earnings behaviour, accounting practices, and the influence of securities markets. An optimistic bias is endemic in European forecasts, consistent with research from the US. Investors who incorporate earnings forecasts in their stock selection procedures may be able to improve returns by explicitly adjusting their models for observed regularities in earnings forecast errors. However, we have shown that these regularities differ in incidence and magnitude across the countries studied, and further research is needed to effectively model these differences.     

Earnings and Expected Returns

The aggregate dividend payout ratio forecasts excess returns on both stocks and corporate bonds in postwar U.S. data. High dividends forecast high returns. High earnings forecast low returns. The correlation of earnings with business conditions gives them predictive power for returns; they contain information about future returns that is not captured by other variables. Dividends and earnings contribute substantial explanatory power at short horizons. For forecasting long-horizon returns, however, only (scaled) stock prices matter. Forecasts of low long-horizon stock returns in the mid-1990s are caused not by earnings or dividends, but by high stock prices.