Seemingly inconsistent analyst revisions |
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Authors: | Michael Iselin Min Park Andrew Van Buskirk |
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Affiliation: | 1. Carlson School of Management, University of Minnesota, 321 19th Ave S., Minneapolis, MN, 55455, USA;2. School of Business, University of Kansas, 1654 Naismith Drive, Lawrence, KS, 66045, USA;3. Fisher College of Business, Ohio State University, 2100 Neil Avenue, Columbus, OH, 43210, USA |
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Abstract: | In about 20%–30% of cases where an analyst revises two outputs (namely, earnings estimates, target prices, or stock recommendations) simultaneously, the two estimates are revised in opposite directions. Existing literature notes that these inconsistent outputs are widespread, and concludes that they are lower-quality, driven by strategic bias, and are viewed as less valid by investors. We find that these characterizations are generally inaccurate. Apparent inconsistency is largely driven by accounting and economic factors, with only limited evidence that investment banking-related conflicts play a role. Moreover, inconsistent outputs are neither less accurate than consistent outputs nor do they resolve less investor uncertainty upon their release. Overall, our results suggest that researchers should be cautious in interpreting the correlation between analyst outputs as a measure of bias or quality, and in using a single analyst output as a proxy for an analyst's overall views. |
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Keywords: | Analysts Inconsistency Conflicts of interest Target prices Earnings estimates Recommendations |
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