Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?
Article first published online: 17 DEC 2002
The American Finance Association 1999
The Journal of Finance
Volume 54, Issue 5, pages 1777–1797, October 1999
How to Cite
Easterwood, J. C. and Nutt, S. R. (1999), Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?. The Journal of Finance, 54: 1777–1797. doi: 10.1111/0022-1082.00166
- Issue published online: 17 DEC 2002
- Article first published online: 17 DEC 2002
- Cited By
A rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts. Several studies document analysts' tendency to systematically underreact to information. Underreaction is inconsistent with rationality. Other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic. This study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts. The evidence indicates that analysts underreact to negative information, but overreact to positive information. These results are consistent with systematic optimism in response to information.