Expectation disarray: Analysts' growth forecast anomaly in China

Laura Xiaolei Liu, Yandi Zhu, Xinyu Zhang and Yingguang Zhang

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: Analysts' growth forecasts positively predict stock returns in China, opposite to the results found in the US. Strategies that buy stocks with high growth forecasts and sell those with low growth forecasts earn annual abnormal returns of up to 20% (with t-values exceeding three). These results are stronger for longer-horizon forecasts and ex-ante more informative forecasts. In addition, the deviation of analysts' forecasts from unbiased forecasts based on statistical models positively predicts abnormal returns. Although the relationship between analysts' forecasts and returns in China is opposite to that in the US, these forecasts positively predict actual growth and are often too extreme, as in the US. Our results suggest that investors in China overlook valuable information contained in analysts' forecasts.

Keywords: Stock return; Analyst forecast; China; Expectation (search for similar items in EconPapers)
JEL-codes: D83 D84 G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002639

DOI: 10.1016/j.pacfin.2023.102192

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