Uncertainty and Financial Analysts’ Optimism: A Comparison between High-Tech and Low-Tech European Firms

Abstract

This study investigates the impact of information uncertainty on analysts' earnings forecasts for a sample of European companies from 2010 to 2019. We argue that representativeness, anchoring and adjustment, and leniency biases jointly influence analysts' forecasts and lead to optimism. We suggest that uncertainty boosts analysts’ optimism as behavioral biases increase in situations of low predictability. We test analysts’ optimism through the association between forecast errors and, separately, two modifications (forecast revision and forecast change) when these modifications are upwards and downwards. To examine the uncertainty effect, we implement descriptive and regression analyses for two subsamples of high-tech and low-tech firms. The evidence indicates that analysts are optimistic, as they overreact to positive prediction modifications and underreact to negative prediction modifications. The optimism is more significant for high-tech firms and increases considerably with the forecast horizon. For robustness, we utilize analysts’ forecast dispersion as a second proxy for uncertainty, and we obtain comparable results.

Intangible and Tangible Investments and Future Earnings Volatility

“…These findings confirm that the uncertainty is higher for industries with a greater reliance on intangible assets (Elkemali 2023;Bessière and Elkemali 2014;Gu and Wang 2005), and that this uncertainty increases when evaluating intangible assets rather than tangible assets. In essence, these results underscore the significant roles of both intangible and tangible assets in shaping future earnings volatility, highlighting the importance of considering asset composition in assessing and managing financial risk.…”

Intangible Assets and Analysts’ Overreaction and Underreaction to Earnings Information: Empirical Evidence from Saudi Arabia

“…Therefore, this result does not align with the conclusions of systematic underreaction as presented in Mendenhall (1991), Abarbanell and Bernard (1992), Ali et al (1992), Elliott et al (1995), and the related literature. However, it does support the findings of general overreaction as illustrated by De Bondt and Thaler (1990), Amir andGanzach (1998), andElkemali (2023).…”

“…This overreaction to extremely good news disappears when the uncertainty is controlled, keeping a general underreaction (Gu and Xue 2007). Marsden et al (2008) and Elkemali (2023) reexamine Amir and Ganzach's hypotheses, obtaining similar results on both Australian and European financial markets. Bouteska and Regaieg (2020) explore the anchoring bias on the Tunisian stock market.…”

“…Consequently, they tend to exhibit more optimism bias, aiming to take advantage of increased trading activity. Elkemali (2023) concludes that uncertainty deepens analysts' optimism bias in the European market.…”

Multinational Corporations and Technological Innovation Development of China’s High-Tech Industries: A Heterogeneity-Based Threshold Effect Analysis

“…The paths of MNC spillover effects mainly include the demonstration effect [30], competition effect [31], personnel mobility effect [32], and association effect [33]. With regard to the study of the impact of MNCs on the innovation efficiency of host countries, scholars have proposed the following main ideas.…”