Are Analysts' Forecasts Informative to the General Public?

Abstract

C ontrary to the common view that analysts are important information agents, intraday returns evidence shows that announcements of analysts' forecast revisions release little new information, on average. Further cross-sectional evidence from returns around the announcements confirms that revisions are virtually information free. Daily announcement returns used in the literature appear to overstate the analyst's role as information agent, because forecast announcements are often issued directly after reports of significant news about the followed firm. The evidence reveals a sequential relationship between events and news and forecast revisions indicative of analyst piggybacking, not prophecy. These new findings about the most sought-after analyst reports broaden significantly the evidence indicating that price reactions to analysts' reports reveal little new information.

What is the value of sell-side analysts? Evidence from coverage changes – A discussion

“…The evidence of little information revelation at initiations is qualitatively similar to findings in other recent studies that suggests analysts supply little new information for the average investor (Altınkılıç and Hansen, 2009;Altınkılıç et al, 2013;Kim and Song, forthcoming;Altınkılıç et al, forthcoming). It points to the prospect that too many economic barriers are present that make it too costly for the intermediary process to consistently supply new information in the real world.…”

“…1 The monitoring benefits from security analysts, identified early by Jensen and Meckling (1976), is widely recognized. For example, see Bhushan (1989), Moyer et al (1989), Chung and Jo (1996), Yu (2008), Demiroglu and Ryngaert (2010), Altınkılıç et al (2013), Kim and Song (forthcoming), and Derrien and Kecskes (2013).…”

Evidence on the Information Content of Text in Analyst Reports

“…For example, if analyst report text is informative, then it is possible that part of the documented market reaction to the quantitative signals is attributable to its correlation with the textual information. Moreover, the recent debate in the literature about whether analysts are an important information intermediary is inconclusive (Altınkılıç and Hansen 2009;Altınkılıç, Balashov, and Hansen 2013;Bradley, Clarke, Lee, and Ornthanalai 2014), perhaps because these studies do not take into account the information role of analyst report text.…”

Of leaders and followers—An econometric analysis of equity analysts and stock market investors

“…Chen, Francis, and Schipper (2005) even suggest that analyst recommendations or earnings forecasts are devoid of any information, reporting that the price movement induced by an analyst output does not differ from the average stock price movement observed on days without any release of analyst information. Altinkiliç, Balashov, and Hansen (2013) argue that analyst information processing typically reiterates publicly available information that is already incorporated into the stock price, concluding that analysts fail to fulfil their information-intermediary role, because security markets themselves are too efficient in pricing new information. Altinkiliç, Balashov, and Hansen (2013) argue that analyst information processing typically reiterates publicly available information that is already incorporated into the stock price, concluding that analysts fail to fulfil their information-intermediary role, because security markets themselves are too efficient in pricing new information.…”