IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2017-02-28.html
   My bibliography  Save this article

Overconfidence Bias, Over/Under-reaction of Financial Analysts on the Tunisian Stock Market, and Their Impacts on the Earnings Forecasts

Author

Listed:
  • Ahmed Bouteska

    (Faculty of Economics and Management of Tunis, URISO, University of Tunis El Manar, Tunisia,)

  • Boutheina Regaieg

    (Faculty of Law, Economics and Management of Jendouba, University of Jendouba, Tunisia.)

Abstract

This paper aims to investigate the effect of financial analysts' recommendations on the overconfidence and over or under-reaction to previous years' earnings, as well as their impact on investment decisions in the Tunisian stock market. Literature mostly turned out that a positive bias in analysts' forecasts overreacted to prior earnings changes. Our study is based on the assumption that overconfidence among analysts can be understood through the accuracy of their forecasts, but also it is detected by the way that analyst provides a clear recommendation or not. The analysis employs a panel regression models using annual and bi-annual data over the period 2010-2015. Empirical results show that analysts on the Tunisian stock market are too confident in their forecasts on average, and there is clearly an overall over-reaction to past earnings changes. However, self-confidence is greater for those forecasts that are equipped with a recommendation, when the over-reaction is greater for the not equipped forecasts.

Suggested Citation

  • Ahmed Bouteska & Boutheina Regaieg, 2017. "Overconfidence Bias, Over/Under-reaction of Financial Analysts on the Tunisian Stock Market, and Their Impacts on the Earnings Forecasts," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 208-214.
    • Handle: RePEc:eco:journ1:2017-02-28
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/3786/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/view/3786/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. De Bondt, Werner F M & Thaler, Richard H, 1990. "Do Security Analysts Overreact?," American Economic Review, American Economic Association, vol. 80(2), pages 52-57, May.
    3. repec:bla:jfinan:v:53:y:1998:i:6:p:1839-1885 is not listed on IDEAS
    4. John Capstaff & Krishna Paudyal & William Rees, 2001. "A Comparative Analysis of Earnings Forecasts in Europe," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(5‐6), pages 531-562, June.
    5. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    6. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340, Elsevier.
    7. Klein, April, 1990. "A direct test of the cognitive bias theory of share price reversals," Journal of Accounting and Economics, Elsevier, vol. 13(2), pages 155-166, July.
    8. Fried, Dov & Givoly, Dan, 1982. "Financial analysts' forecasts of earnings : A better surrogate for market expectations," Journal of Accounting and Economics, Elsevier, vol. 4(2), pages 85-107, October.
    9. John C. Easterwood & Stacey R. Nutt, 1999. "Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?," Journal of Finance, American Finance Association, vol. 54(5), pages 1777-1797, October.
    10. Shefrin, Hersh, 2008. "A Behavioral Approach to Asset Pricing," Elsevier Monographs, Elsevier, edition 2, number 9780123743565.
    11. Abarbanell, Jeffrey S & Bernard, Victor L, 1992. "Tests of Analysts' Overreaction/Underreaction to Earnings Information as an Explanation for Anomalous Stock Price Behavior," Journal of Finance, American Finance Association, vol. 47(3), pages 1181-1207, July.
    12. Lee, Chi-Wen Jevons & Chen, Chung, 1990. "Structural changes and the forecasting of quarterly accounting earnings in the utility industry," Journal of Accounting and Economics, Elsevier, vol. 13(2), pages 93-122, July.
    13. Simon Hussain, 1996. "Over-Reaction by Security Market Analysts: The Impact of Broker Status and Firm Size," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 23(9-10), pages 1223-1244, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    2. Anna M. Cianci & Satoris S. Culbertson, 2010. "The Impact of Motivational and Cognitive Factors on Optimistic Earnings Forecasts," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 11, Edward Elgar Publishing.
    3. Friesen, Geoffrey & Weller, Paul A., 2006. "Quantifying cognitive biases in analyst earnings forecasts," Journal of Financial Markets, Elsevier, vol. 9(4), pages 333-365, November.
    4. John A. Doukas & Chansog (Francis) Kim & Christos Pantzalis, 2002. "A Test of the Errors‐in‐Expectations Explanation of the Value/Glamour Stock Returns Performance: Evidence from Analysts' Forecasts," Journal of Finance, American Finance Association, vol. 57(5), pages 2143-2165, October.
    5. Amir, Eli & Ganzach, Yoav, 1998. "Overreaction and underreaction in analysts' forecasts," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 333-347, November.
    6. Reza Espahbodi & Amitabh Dugar & Hassan Tehranian, 2001. "Further evidence on optimism and underreaction in analysts' forecasts," Review of Financial Economics, John Wiley & Sons, vol. 10(1), pages 1-21, March.
    7. Charles G. Ham & Zachary R. Kaplan & Zawadi R. Lemayian, 2022. "Rationalizing forecast inefficiency," Review of Accounting Studies, Springer, vol. 27(1), pages 313-343, March.
    8. Pasaribu, Rowland Bismark Fernando, 2010. "Anomali Overreaction di bursa efek Indonesia: Penelitian Saham LQ-45 [Overreaction Anomaly in Indonesia Stock Exchange: Case Study of LQ-45 Stocks]," MPRA Paper 36998, University Library of Munich, Germany.
    9. Po‐Chang Chen & Ganapathi S. Narayanamoorthy & Theodore Sougiannis & Hui Zhou, 2020. "Analyst underreaction and the post‐forecast revision drift," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1151-1181, October.
    10. Sunil Mohanty & Edward Aw, 2006. "Rationality of analysts' earnings forecasts: evidence from dow 30 companies," Applied Financial Economics, Taylor & Francis Journals, vol. 16(12), pages 915-929.
    11. Ciccone, Stephen J., 2005. "Trends in analyst earnings forecast properties," International Review of Financial Analysis, Elsevier, vol. 14(1), pages 1-22.
    12. Chahine, Salim, 2004. "Long-run abnormal return after IPOs and optimistic analysts' forecasts," International Review of Financial Analysis, Elsevier, vol. 13(1), pages 83-103.
    13. Robert G. Biscontri, 2012. "A Radial Basis Function Approach To Earnings Forecast," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 19(1), pages 1-18, January.
    14. Espahbodi, Reza & Dugar, Amitabh & Tehranian, Hassan, 2001. "Further evidence on optimism and underreaction in analysts' forecasts," Review of Financial Economics, Elsevier, vol. 10(1), pages 1-21.
    15. Basu, Sudipta & Markov, Stanimir, 2004. "Loss function assumptions in rational expectations tests on financial analysts' earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 171-203, December.
    16. Abarbanell, Jeffery & Lehavy, Reuven, 2003. "Biased forecasts or biased earnings? The role of reported earnings in explaining apparent bias and over/underreaction in analysts' earnings forecasts," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 105-146, December.
    17. K. C. Kenneth Chu & W. H. Sophia Zhai, 2021. "Distress risk puzzle and analyst forecast optimism," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 429-460, August.
    18. Clatworthy, Mark A. & Peel, David A. & Pope, Peter F., 2007. "Evaluating the properties of analysts’ forecasts: A bootstrap approach," The British Accounting Review, Elsevier, vol. 39(1), pages 3-13.
    19. Linnainmaa, Juhani T. & Torous, Walter & Yae, James, 2016. "Reading the tea leaves: Model uncertainty, robust forecasts, and the autocorrelation of analysts’ forecast errors," Journal of Financial Economics, Elsevier, vol. 122(1), pages 42-64.
    20. Wu, Yanran & Zhang, Chao, 2022. "Hard to arbitrage, hard for analysts to forecast," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).

    More about this item

    Keywords

    Overconfidence; Overreaction; Analysts' Recommendations; Earnings Forecasts;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2017-02-28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.