Analysts’ Forecasts and Asset Pricing: A Survey
By S. Kothari, Eric C. So, Rodrigo S. Verdi. 2016
189 citations recorded by the source corpus.
This survey reviews the literature on sell-side analysts’ forecasts and their implications for asset pricing. We review the literature on the supply and demand forces shaping analysts’ forecasting decisions as well as on the implications of the information they produce for both the cash flow and the discount rate components of security returns. Analysts’ forecasts bring prices in line with the expectations they embody, consistent with the notion that they contain information about future cash flows. However, analysts’ forecasts exhibit predictable biases, and the market appears to underreact to the information in forecasts and to not fully filter the biases in forecasts. Analysts’ forecasts are also helpful in estimating expected returns on securities, but evidence on the relation between analysts’ forecasts and expected returns is still scarce. We conclude by identifying unanswered questions and offering suggestions for future research.
Subfields: Accounting, Finance, Strategy and Management
View Paper: https://www.semanticscholar.org/paper/a2d3b21fe6b8cc8114a2ff24be06e595748ff339
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Citations in the corpus
- Uncovering expected returns: Information in analyst coverage proxies (2017, background): “A substantial body of research shows that analysts facilitate market efficiency when providing coverage by reducing uncertainty over firms’ value [see Kothari et al. (2016) for a recent literature review].”