Analyst Bias and Mispricing

Mark Grinblatt, Gergana Jostova and Alexander Philipov

No 31094, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Cross-sectional forecasts of conservative and optimistic biases in analyst earnings estimates predict a stock's future returns, especially for firms that are hard to value. Trading strategies—whether based on the component of analyst bias that is correlated with major return anomalies or the component that is orthogonal to these anomalies—earn abnormal profits. The prevalence of optimistic analyst earnings estimates and rarity of conservative estimates emerges as a common link between anomaly-generating firm characteristics and subsequent negative alphas. For the vast majority of anomaly strategies, profitability disappears once we control for analyst bias.

JEL-codes: G12 G13 G14 G24 G41 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-bec and nep-fmk
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