Probability of Meeting/beating Analysts' Forecasts and Market Reaction to Earnings Announcements PDF Download

Author: Mei Cheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 108

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Author: Vincent Y. S. Chen
Publisher:
ISBN:
Category :
Languages : en
Pages : 69

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Although analyst forecasts are one of the most critical thresholds for setting the market's expectations, the meeting of analyst forecasts is not always followed by a positive market reaction. In this study, I find that the market reacts negatively to 41 percent of firms that meet or beat analyst forecasts and positively to 44 percent of firms that miss analyst forecasts. Intuitively, the seemingly counterintuitive market reactions to firms' meeting or beating analyst forecasts indicate that the market's expectations about a firm's future earnings is based not only on earnings but also on 'other information'. I estimate the content of 'other information' in analyst forecasts as a basis for the seemingly opposite direction of the market reactions and find that content to be an explanatory factor. Specifically, I find that the market values a firm's long-run growth, market risk, forecast precision, accounting loss, price decreases from the prior quarter and the past history of meeting or beating analyst forecasts when assessing the firm's meeting or beating analyst forecast expectations. I also find the evidence, however, that the market overestimates the persistence of the other information in analyst forecasts about future earnings. Overall, I find that the market does not functionally fixate on earnings when valuing firms' meeting or beating analyst forecasts. The consequences of capital market concerns of the meeting or beating analyst expectations seem to have been overemphasized.

Author: John Shon
Publisher: FT Press
ISBN: 0132615851
Category : Business & Economics
Languages : en
Pages : 225

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Profit from earnings announcements, by taking targeted, short-term option positions explicitly timed to exploit them! Based on rigorous research and huge data sets, this book identifies the specific earnings-announcement trades most likely to yield profits, and teaches how to make these trades—in plain English, with real examples! Trading on Corporate Earnings News is the first practical, hands-on guide to profiting from earnings announcements. Writing for investors and traders at all experience levels, the authors show how to take targeted, short-term option positions that are explicitly timed to exploit the information in companies’ quarterly earnings announcements. They first present powerful findings of cutting-edge studies that have examined market reactions to quarterly earnings announcements, regularities of earnings surprises, and option trading around corporate events. Drawing on enormous data sets, they identify the types of earnings-announcement trades most likely to yield profits, based on the predictable impacts of variables such as firm size, visibility, past performance, analyst coverage, forecast dispersion, volatility, and the impact of restructurings and acquisitions. Next, they provide real examples of individual stocks–and, in some cases, conduct large sample tests–to guide investors in taking advantage of these documented regularities. Finally, they discuss crucial nuances and pitfalls that can powerfully impact performance.

Author: Lise Newman Graham
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 334

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Author: Marcus Kirk
Publisher:
ISBN:
Category :
Languages : en
Pages : 49

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The expectations management literature has so far focused on firms meeting the analyst consensus forecast -- the expectations of analysts as a group -- at earnings announcements. In this study we argue that investors may use individual analyst forecasts as additional benchmarks in evaluating reported earnings because the consensus forecast underutilizes private information contained in individual analyst forecasts. We predict that measures reflecting such private information have incremental explanatory power over the consensus forecast for the market's reaction to earnings news. We find results consistent with this prediction by examining two measures: (1) the percentage of individual forecasts met and (2) meeting the key analyst forecast. We extend the literature by documenting the role of individual analyst forecasts in investors' evaluations of reported earnings.

Author: Guang Ma
Publisher:
ISBN:
Category :
Languages : en
Pages : 54

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We investigate to what extent the market uses information that is predictive of whether earnings will meet or beat the analyst consensus forecast of earnings (MBE henceforth): measures of a firm's incentives to engage in MBE behavior, measures of constraints on MBE, measures of past MBE practices by firm and industry, and other variables. Using the Mishkin test framework and Bonferroni-adjusted p-values, we document that of a total of 21 variables, the market inefficiently uses information in one difficulty measure and four other predictors, suggesting that strong empirically and theoretically grounded relationships concerning MBE behavior are more likely to be unraveled by the market. We further show that a portfolio based on the difference between the objective MBE probability and the market-assessed MBE probability generates significant abnormal returns. This return predictability is distinct from known sources of predictability and cannot be fully explained by arbitrage risk or transaction costs.

Author: Dawn A. Matsumoto
Publisher:
ISBN:
Category :
Languages : en
Pages : 54

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Book Description
Recent reports in the popular press allege that managers guide analysts' forecasts downward to improve their chances of meeting or beating these forecasts when earnings are announced. Since the majority of this alleged guidance is unobservable, I use systematic patterns in analysts' forecast errors as a proxy for firm-provided guidance and examine both the change in guidance over time as well as the characteristics of firms exhibiting evidence of this guidance. The evidence is consistent with an increase in firm-provided guidance in recent years and differences across firms in the propensity to guide forecasts downward. In particular, I find: 1) an increasing number of forecast errors exactly equal to zero particularly for firms with initially high forecasts; 2) when firms miss analysts' expectations at the earnings announcement, the proportion that miss quot;highquot; (positive earnings surprise) versus miss quot;lowquot; (negative earnings surprise) has increased in recent years particularly for firms with initially high forecasts; 3) firms with higher growth prospects, higher institutional ownership, and higher litigation risk are more likely to guide analysts' forecasts downward to ensure reported earnings meet expectations at the earnings announcement, while firms with low value relevance of earnings are less likely to do so; and 4) firms with high institutional ownership and reliance on implicit claims with their stakeholders tend to exceed rather than fall short of expectations at the earnings announcement.

Author: David Veenman
Publisher:
ISBN:
Category :
Languages : en
Pages : 55

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This study presents evidence suggesting that investors do not fully unravel predictable pessimism in sell-side analysts' earnings forecasts. We show that measures of prior consensus and individual analyst forecast pessimism are predictive of both the sign of firms' earnings surprises and the stock returns around earnings announcements. That is, we find that firms with a relatively high probability of forecast pessimism experience significantly higher announcement returns than those with a low probability. Importantly, we show these findings are driven by predictable pessimism in analysts' short-term forecasts as opposed to optimism in their longer-term forecasts. We further find that this mispricing is related to the difficulty investors have in identifying differences in expected forecast pessimism. Overall, we conclude that market prices do not fully reflect the conditional probability that a firm meets or beats earnings expectations as a result of analysts' pessimistically biased short-term forecasts.

Author: American Accounting Association
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 388

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Author: Jeffery S. Abarbanell
Publisher:
ISBN:
Category : Investment analysis
Languages : en
Pages : 56

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