Stock market reactions and optimism bias in analysts’ earnings forecasts: An analysis of China's stock markets

Xu Ji, Yan Dong, Gianluca Vagnani and Xiaoqi Yang

Finance Research Letters, 2024, vol. 59, issue C

Abstract: This paper examines analysts’ catering behavior to current investor demand, proxied by the unbalanced stock market reaction toward optimistic forecasts and non-optimistic forecasts (i.e., optimism premium). Using data on earnings forecasts issued by sell-side analysts in China from 2014 to 2018, we show that the optimism premium significantly increases analysts’ tendency to issue optimistic forecasts—in short, that analysts do cater to investor demand. The implications of our findings for theory and practices are discussed.

Keywords: Financial analysts’ earnings forecast; Optimism premium; Catering behavior; Conflict of interest (search for similar items in EconPapers)
JEL-codes: G14 G24 G41 J44 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323011947

DOI: 10.1016/j.frl.2023.104822

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