Why Do Analysts Disagree ?

Jean-Sébastien Michel and J. Ari Pandes

Cahiers de recherche from CIRPEE

Abstract: This paper finds that about one-quarter of analyst forecast dispersion and one-half of the dispersion-return relationship between 1985 and 2012 are explained by analyst overconfidence. In particular, the firm’s analyst overconfidence mean and analyst overconfidence dispersion are the two most significant determinants of analyst forecast dispersion. Together, these two variables capture 77% of the explained variation in analyst forecast dispersion when all known determinants are considered. With respect to the dispersion-return relationship, the analyst forecast dispersion predicted by analyst overconfidence leads to a monthly hedging portfolio profit of 0.35% compared to a profit of 0.37% for the analyst forecast dispersion not predicted by analyst overconfidence.

Keywords: Analyst Overconfidence; Self-Attribution Bias; Analyst Forecast Dispersion; Stock Returns (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cbe and nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1305

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