The dispersion anomaly and analyst recommendations

Jorida Papakroni ()
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Jorida Papakroni: Franklin & Marshall College

Review of Quantitative Finance and Accounting, 2018, vol. 50, issue 3, No 8, 896 pages

Abstract: Abstract The main objective of this study is to distinguish whether the forecast dispersion anomaly is due to Miller’s (J Finance 32(4):1151–1168, 1977) overpricing hypothesis or idiosyncratic risk, by conditioning the sample on “buy” and “sell” consensus recommendations. Observations on the long and short possibilities provided to the investors by the analyst stock recommendations can help us infer on the impact of short sale constraints even though they are not directly observed. This study provides strong evidence that the impact of analyst forecast dispersion is more pronounced in the group of stocks that receive the least favorable recommendations in a given period, even after controlling for the idiosyncratic risk, Fama–French factors (J Financ Econ 33(1):3–56, 1993; J Financ Econ 116(1):1–22, 2015) and even short-sale constraints. These results are consistent with Miller’s (1977) hypothesis, according to which if short-sale constraints bind, high opinion divergence stocks become overpriced and hence have low subsequent returns.

Keywords: Analysts’ earnings forecast dispersion; Recommendation dispersion; Consensus recommendation; Anomaly; Stock returns; Market efficiency; Security analysts (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G24 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-017-0649-6

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