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What can analyst forecasts tell us about imperfect information?

Author

Listed:
  • Li, Lin
  • Liu, Kunyu
  • Li, Guoping

Abstract

We used two imperfect information models, taking analyst as representatives of informed investors, quantifying the potential information constraints of the financial market and different companies, and found that China's financial market has more serious information friction than the United States, which means that people update the information set every seven to eight months on average or people's weight on new information is only 0.37. At the same time, we also found evidence consistent with cognitive constraints or rational inattention theory, that the more volatile a company's and industry performance, the slower analysts are to respond to that company's information.

Suggested Citation

  • Li, Lin & Liu, Kunyu & Li, Guoping, 2024. "What can analyst forecasts tell us about imperfect information?," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1059-1073.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:1059-1073
    DOI: 10.1016/j.iref.2024.02.071
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    More about this item

    Keywords

    Rational inattention; Imperfect information; Analyst forecasts;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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