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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Managerial Guidance and Analysts' Underreaction
Organization Unit
  • Kremena Bachmann
  • Peter Woehrmann
  • English
Institution University of Zurich
Series Name NCCR
Number 418
Date 2007
Abstract Text Empirical investigations of analysts forecast surveys concerning earnings realizations find significant time varying biases usually attributed to the analysts liability to cognitive limitations. For example, a positive autocorrelation of analysts forecast errors is commonly explained by analysts underreaction. In this paper we develop a random dynamical system describing the evolution of analysts forecasts and firms prices and show that managerial guidance is capable to explain such inefficiencies in the analysts forecasting behavior. This result is well supported by empirical tests. In particular, we find that the managers of growth firms guide stronger than the managers of value firms, which allows further conclusions on the precision and efficiency of earnings forecasts released for value and growth stocks in line with the literature.
Other Identification Number merlin-id:4563
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