Prospect Theory. Analyst Forecasts, and Stocks Returns
This paper documents how prospect theory can be used to explain stock returns and analysts’ forecast behavior. Positive earnings surprises are associated with increases in abnormal returns but negative earnings surprises have only a limited negative impact on returns. We find that analysts display asymmetric behavior towards positive and negative earnings growth. Analysts’ forecasts are found to be accurate during periods of positive earnings growth, but overly optimistic during periods of negative earnings growth. Our findings have implications for the structuring of investment products, as well as the role of market timing in their introduction.
Behavioral finance, Prospect theory, Analyst forecasts, Earnings growth, Earnings Surprises, Underreaction, Trends
Australasian Finance and Banking Conference, Sydney, Australia, December 2003
City or Country
DING, David K..
Prospect Theory. Analyst Forecasts, and Stocks Returns. (2003). Australasian Finance and Banking Conference, Sydney, Australia, December 2003. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/738