Analysts' Weighting of Private and Public Information

Authors: Chen, Qi; Jiang, Wei

Source: Review of Financial Studies, Volume 19, Number 1, 2006 , pp. 319-355(37)

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Abstract:

Using both a linear regression method and a probability-based method, we find that on average, analysts place larger than efficient weights on (i.e., they overweight) their private information when they forecast corporate earnings. We also find that analysts overweight more when issuing forecasts more favorable than the consensus, and overweight less, and may even underweight, private information when issuing forecasts less favorable than the consensus. Further, the deviation from efficient weighting increases when the benefits from doing so are high or when the costs of doing so are low. These results suggest that analysts' incentives play a larger role in misweighting than their behavioral biases.

Keywords: fetus; heart rate; prenatal environment; prenatal drug exposure; cigarette smoking

Document Type: Research article

DOI: http://dx.doi.org/10.1093/rfs/hhj007

Publication date: 2006-01-01

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The Review of Financial Studies is a major forum for the promotion and wide dissemination of significant new research in financial economics. As reflected by its broadly based editorial board, the Review balances theoretical and empirical contributions. The primary criteria for publishing a paper are its quality and importance to the field of finance, without undue regard to its technical difficulty. Finance is interpreted broadly to include the interface between finance and economics. The Review is sponsored by The Society for Financial Studies. The editors of the Review and officers of the Society are elected for limited terms.