Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
Further Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsy Smeal College of Business Administration University Park, PA 16802-1912 814-863-3230Mary Stanford Associate Professor, Nobel Faculty Fellow Texas Christian University M.J. Neeley School of BusinessFort Worth, TX 76129Yong Yu Pennsylvania State University Smeal College of Business Administration Un Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsiversity Park, PA 16802-191238624(This is a preliminary revised draft of a manuscript requiring a major revision for publication. Please do not quoteFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
without permission)We gratefully acknowledge the contribution of I/B/E/S International Inc. for providing earnings per share forecast data, available Further Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsn research.For their helpful comments we thank Richard Schnieble and workshop participants at the CUNY Baruch and Penn State University.ABSTRACTPrevious research finds a negative association between the level of dispersion in analysts’ earnings forecasts and subsequent stock returns. This finding ca Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsn be consistent with either unsystematic uncertainty that is priced positively because it increases a firm’s option value (Johnson, 2004) or overpriciFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
ng due to a lack' of consensus among investors that limits the short sales of the most pessimistic traders (Diether et al, 2002). We use the Barron etFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns(2) a lack of consensus (i.e., a relatively high level of private information among analysts). A high level of uncertainty may be priced positively or negatively depending on whether it is systematic or unsystematic. In contrast, the private information that causes a lack of consensus is likely to b Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnse priced negatively because it reflects information asymmetry and a higher cost of capital (Botosan, Plumlee, and Xie 2004).The evidence we report helFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
ps distinguish between the different explanations for forecast dispersion and what drives its relation to stock returns. We find that (1) changes in dFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsf unsystematic uncertainty (and not the level of information asymmetry), and (2) the uncertainty in forecast dispersion is negatively associated with future stock returns, but the lack of consensus (or information asymmetry ) is positively associated with future stock returns. These findings support Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns Johnson’s option value explanation but do not support Diether el al.’s overpricing explanation because lower levels of consensus do not lead to lowerFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
future returns.In addition, our evidence that levels and changes in dispersion reflect fundamentally different constructs reconciles the evidence on Further Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsent with L’Her and Suret’s argument that forecast dispersion represents uncertainty that is priced negatively. We find that increases in forecast dispersion coincide with more negative stock returns because there is less consensus (and thus more information asymmetry that adversely affects firms’ co Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsst of capital).https://khothuvien.cori!1. IntroductionPrior research posits opposing explanations for the empirically documented relation between dispFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
ersion in analysts’ forecasts and slock returns. Dielher el al. (2002) argue that the negative relation between dispersion levels and future returns iFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsk returns. Johnson (2004) presents a model suggesting that this negative relation may also be due to the uncertainty (or risk) reflected in dispersion which, although unsystematic in nature, increases the option value of the firm and leads to lower future returns. Further clouding the issue, Deither Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns el al.’s arguments suggest a positive relation between changes in dispersion and contemporaneous stock returns. This is contrary to evidence presenteFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
d by L’Her and Suret (1996) that increases in forecast dispersion are negatively associated with stock returns.Using the Barron. Kim. Lim. and StevensFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsions. Our evidence provides increased empirical support for Johnson’s conclusion that the level OÍ dispersion analysts’ forecasts reflects unsystematic risk (uncertainty). In addition, consistent with L’ller and Surct’s (1996) findings, we find a negative relation between changes in dispersions and Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsslock returns, which we show is likely caused by increased information asymmetry between informed and uninformed investors reflected in a decrease inFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
consensus.Diethcr et al. (2002) aigue that when investors disagree, limitations on trading, e.g., short sale limitations, result in prices that reflecFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns is corrected and a positive relation between changes in dispersions and Slock returns. In addition, based on tests explaining dispersion with several measures of risk Diether et al. conclude “...our results strongly reject the interpretation of dispersion in analysts’ forecasts as a measure of risk Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns." (p 2115).By contrast, Johnson (2004) provides a pricing model in which the negative relation between dispersion levels and stock returns may be dueFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
to a form of information risk (uncertainty) where dispersion reflects nonsystematic risk (idiosyncratic uncertainty) that increases the option value Further Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns, i.e., both may explain the relation between dispersion and returns.We begin by empirically separating dispersion into its theoretical components. Theoretically, in order for dispersion in analysts’ forecasts to exist there must be both (1) some uncertainty regarding future performance and (2) some Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns lack of consensus due to the diversity of private information (Barry and Jennings 1992; Abarbanell, Lanen, and Verrecchia 1995; Barron, et al. 1998).Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
Thus, it is unclear the degree to which forecast dispersion reflects uncertainty or a lack of consensus. Finding that dispersion levels reflect uncerFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnschanges in dispersion reflect changes in consensus would serve to increase understanding of the findings of L’Her and Surer (1996) and to reconcile these findings with those of Johnson (2004) and Diether et al. (2002).3We provide evidence on whether dispersion in analysts’ forecasts reflects uncerta Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsinty or a lack of consensus using the BKLS empirical proxies for these theoretical constructs. We examine both the level of dispersion prior to an earFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
nings announcement and the change in dispersion around earnings announcements.1 We find that the level of pre-announcement forecast dispersion reflectFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsn changes in uncertainty.Our finding that levels of dispersion reflect uncertainty is consistent with Johnson’s (2004) conclusion that the negative relation between dispersion levels and future stock returns is driven by uncertainty. In further analysis, we examine market data to determine whether t Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnshe level of forecast dispersion reflects primarily systematic or unsystematic uncertainty about future performance. We show that higher levels dispersFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
ion are associated with higher idiosyncratic risk and lower future returns. This combined evidence provides support for Johnson's argument that the neFurther Evidence on the Relation betweenAnalysts* Forecast Dispersion and Stock ReturnsOne E. Barron Associate Professor Pennsylvania State University Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returnsupport to Johnson’s theory it does not completely rule out Deither et al.’s (2002) conclusion that the negative relation results from overpricing due to investor disagreement. However, Deither et al.’s argument that dispersion is negatively associated with future returns implies a positive (negative Further Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns) relation between consensus (lack of consensus) and future stock returns because dispersion increases as consensus (lack of consensus) decreases (incFurther Evidence on the Relation between Analysts’ Forecast Dispersion and Stock Returns
reases). In contrast1 Some prior studies measure the change in dispersion from year to year. We do not investigate these types of changes in forecastGọi ngay
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