What drives the dispersion anomaly?

Byoung-Kyu Min, Buhui Qiu () and Tai-Yong Roh

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: This paper shows that the stock return predictability of analysts’ earnings forecast dispersion is driven by the information content of dispersion about future firm profitability. Greater dispersion predicts lower future profitability, and the return predictability of dispersion disappears after controlling for future profitability. We propose disclosure manipulation as an explanation for the relation between dispersion and future profitability. Disclosure quality is inversely related to forecast dispersion. Moreover, the return predictability of dispersion decreases in disclosure quality. Our results are robust to the consideration of previously suggested explanations for the dispersion anomaly.

Keywords: Dispersion anomaly; Profitability; Disclosure quality (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s037842662200005x

DOI: 10.1016/j.jbankfin.2022.106405

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