An empirical examination of the dispersion and accuracy of analyst forecasts surrounding option listing

Li‐Chin Jennifer Ho, John M. Hassell and Steve Swidler

Review of Financial Economics, 1995, vol. 4, issue 2, 171-185

Abstract: Prior theoretical and empirical research indicates that option trading enhances the availability and timeliness of market information, and that the market's earnings expectation (belief) is influenced by characteristics of the information environment. Motivated by these research findings, we investigate whether option listing is associated with changes in the market's expectations about future earnings. Assuming that the distribution of analysts' earnings forecasts serves as a proxy for the market's earnings expectations and using I/B/E/S consensus analyst forecasts, we examine two properties of analyst forecasts: accuracy and dispersion. The results indicate that consensus analyst forecast accuracy improves after option listing and that the variability of analyst forecasts increases after option listing. The accuracy and dispersion results are somewhat weaker but still present after controlling for firm size and analyst following.

Date: 1995
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https://doi.org/10.1016/1058-3300(95)90005-5

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:4:y:1995:i:2:p:171-185

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