Analysts’ Forecasts and Asset Pricing: A Survey
S.P. Kothari (),
Eric So () and
Rodrigo Verdi ()
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S.P. Kothari: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Eric So: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Rodrigo Verdi: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Annual Review of Financial Economics, 2016, vol. 8, issue 1, 197-219
Abstract:
This survey reviews the literature on sell-side analysts’ forecasts and their implications for asset pricing. We review the literature on the supply and demand forces shaping analysts’ forecasting decisions as well as on the implications of the information they produce for both the cash flow and the discount rate components of security returns. Analysts’ forecasts bring prices in line with the expectations they embody, consistent with the notion that they contain information about future cash flows. However, analysts’ forecasts exhibit predictable biases, and the market appears to underreact to the information in forecasts and to not fully filter the biases in forecasts. Analysts’ forecasts are also helpful in estimating expected returns on securities, but evidence on the relation between analysts’ forecasts and expected returns is still scarce. We conclude by identifying unanswered questions and offering suggestions for future research.
Keywords: information intermediary; mispricing; anomalies; disclosure (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 M40 M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (48)
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