TY - JOUR
T1 - Analyst underreaction and the post-forecast revision drift
AU - Chen, Po Chang
AU - Narayanamoorthy, Ganapathi S.
AU - Sougiannis, Theodore
AU - Zhou, Hui
N1 - Publisher Copyright:
© 2020 John Wiley & Sons Ltd
Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2020/10/1
Y1 - 2020/10/1
N2 - The post-forecast revision drift (PFRD), the phenomenon of delayed stock price reactions to analyst forecast revisions, is a well-documented market anomaly. Prior research attributes PFRD to underreaction by investors to analyst forecast revisions. This study investigates the role of the analyst forecast revision process itself in the PFRD anomaly. Using a large sample of US firms, we confirm prior findings of a positive serial correlation (momentum) in individual analysts’ revisions to their earnings forecasts and, based on both indirect and direct tests, document a positive association between this momentum and PFRD. Further analyses reveal that both the forecast revision momentum and PFRD vary in similar ways with respect to the nature of the news driving the revisions and the information environment. Collectively, our findings show that underreaction by individual analysts in the forecast revision process is an important contributor to the PFRD phenomenon.
AB - The post-forecast revision drift (PFRD), the phenomenon of delayed stock price reactions to analyst forecast revisions, is a well-documented market anomaly. Prior research attributes PFRD to underreaction by investors to analyst forecast revisions. This study investigates the role of the analyst forecast revision process itself in the PFRD anomaly. Using a large sample of US firms, we confirm prior findings of a positive serial correlation (momentum) in individual analysts’ revisions to their earnings forecasts and, based on both indirect and direct tests, document a positive association between this momentum and PFRD. Further analyses reveal that both the forecast revision momentum and PFRD vary in similar ways with respect to the nature of the news driving the revisions and the information environment. Collectively, our findings show that underreaction by individual analysts in the forecast revision process is an important contributor to the PFRD phenomenon.
KW - Analyst forecast revisions
KW - analyst underreaction
KW - PFRD
KW - post-forecast revision drift
KW - revision momentum
UR - http://www.scopus.com/inward/record.url?scp=85089960400&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85089960400&partnerID=8YFLogxK
U2 - 10.1111/jbfa.12491
DO - 10.1111/jbfa.12491
M3 - Article
AN - SCOPUS:85089960400
VL - 47
SP - 1151
EP - 1181
JO - Journal of Business Finance and Accounting
JF - Journal of Business Finance and Accounting
SN - 0306-686X
IS - 9-10
ER -