Several studies find that stocks with higher dispersion of analysts’ earnings forecasts have lower future returns. The phenomenon is popularly interpreted as evidence that stock prices reflect optimism in the presence of differences of opinions and short-sales constraints. This paper shows that stocks with higher forecast dispersion also experience poorer operating performance in the future. We...

Modern portfolio theory is based on the relationship between risk and return and in this paper, specific uncertainty conditions are introduced as ambiguity which affects the asset pricing. Also, the relationship between risk, ambiguity and return is examined. First, ambiguity is estimated by the means of three-variable and main component method, trading volume, ask-bid spread, error of earnings...

I examine the impact of management cash flow forecasts on investors and analysts. The news in management cash flow forecasts is priced beyond total earnings news. Analysts revise earnings forecasts more for the news in these forecasts than for the news in accruals. I further find that the market’s higher pricing of cash flow forecast news is greater for firms 1) with bad earnings news, 2) in fi...

Using data from 1990-2013, we show 1) the serial correlation of analyst forecast errors increases in the extent of international diversification, 2) PEAD based on analyst forecast errors increases in the extent of international diversification, and 3) the impact of international diversification on the serial correlation of analyst forecast errors and the associated drift is significantly reduce...

We examine whether the post forecast revision drift is attributable to investors’ underreaction to industry-wide and/or firm-specific earnings news in analysts’ forecast revisions. We find a large drift associated with industry-wide earnings news but, on average, no drift associated with firm-specific earnings news. Consistent with the functional fixation hypothesis, we show empirically that th...

This paper examines the association of comprehensive income with subsequent period net income as well as analysts’ earnings forecasts. Our results support the notion that comprehensive income is incrementally useful in predicting subsequent period changes in net income. We also document that comprehensive income is associated with analysts’ earnings forecast revisions and forecast errors. The e...

This paper evaluates the information content of analysts’ one-quarter ahead earnings forecast revisions and recommendation revisions at various points in time relative to earnings announcement dates. We conduct three sets of tests to evaluate the information content of revisions. Across all tests, we find that the revisions are least informative in the week after earnings announcements and that...

The objective of this study is to examine whether analysts fully incorporate a nonproportionate algorithm of cost-change relative to revenue-change in forecasting earnings. We conjecture that the errors in analysts’ earnings forecasts made in the first month after the fiscal year-end are largely due to the errors in estimating expenses as a result of analysts’ use of a proportionate cost-change...