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Why do analysts issue forecast revisions inconsistent with prior stock returns? Determinants and consequences

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  • Xiaobo Dong
  • Kuan-Chen Lin
  • Roger Graham
  • Anne Wyatt

Abstract

type="main" xml:id="acfi12101-abs-0001"> We examine the informativeness of analyst forecast revisions that are directionally inconsistent with prior stock price movements (sign-inconsistent revisions). Sign-inconsistent revisions represent approximately one-half of the forecast revisions from 1995 through 2010. Our tests indicate that sign-inconsistent revisions are less informative than are sign-consistent revisions. Sign-inconsistent revisions are less likely to be closer to actual earnings realizations and they generate smaller stock price reactions. We also find evidence that sign-inconsistent revisions are associated with analysts' economic incentives to generate trading volume and their behavioural limitations related to information uncertainty. These results suggest that sign-inconsistent revisions do not necessarily benefit investors.

Suggested Citation

  • Xiaobo Dong & Kuan-Chen Lin & Roger Graham & Anne Wyatt, 2016. "Why do analysts issue forecast revisions inconsistent with prior stock returns? Determinants and consequences," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(2), pages 363-391, June.
    • Handle: RePEc:bla:acctfi:v:56:y:2016:i:2:p:363-391
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    File URL: http://hdl.handle.net/10.1111/acfi.2016.56.issue-2
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    Cited by:

    1. Hasibul Chowdhury & Robert Faff & Khoa Hoang, 2021. "Using abnormal analyst coverage to unlock new evidence on stock price crash risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 1557-1588, April.
    2. Iselin, Michael & Park, Min & Van Buskirk, Andrew, 2021. "Seemingly inconsistent analyst revisions," Journal of Accounting and Economics, Elsevier, vol. 71(1).
    3. Ihtisham A. Malik & Robert W. Faff & Kam F. Chan, 2020. "Market response of US equities to domestic natural disasters: industry‐based evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3875-3904, December.

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