Separating the Effects of Asymmetric Incentives and Inefficient Use of Information on Financial Analysts' Consensus Earnings Forecast Errors

Author

Stanimir Markov, Emory University
Min Yen TAN, Singapore Management UniversityFollow

Publication Type

Working Paper

Publication Date

9-2005

Abstract

Prior research on financial analysts’ consensus earnings forecast errors has tended to explore either incentives-based or inefficient information use-based explanations for the properties of the analysts’ forecast errors. This has limited our understanding of financial analysts’ expectation formation process as incentives and cognitive biases are likely to simultaneously affect the properties of the analysts’ consensus forecast errors. Our main contribution is in separating these two effects. In particular, using consensus quarterly earnings forecast data, we document that analysts have asymmetric loss function and that they do not fully use information about past earnings and forecast errors in minimizing their expected loss.

Discipline

Accounting | Finance and Financial Management

Research Areas

Financial Intermediation and Information

Citation

Markov, Stanimir and TAN, Min Yen. Separating the Effects of Asymmetric Incentives and Inefficient Use of Information on Financial Analysts' Consensus Earnings Forecast Errors. (2005).
Available at: https://ink.library.smu.edu.sg/soa_research/166

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.