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Does Past Success Lead Analysts to Become Overconfident?

Author

Listed:
  • Gilles Hilary

    (Department of Accounting, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)

  • Lior Menzly

    (Vega Asset Management, 375 Park Avenue, Suite 29, New York, New York 10152-0002)

Abstract

This paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction. This phenomenon is economically and statistically meaningful. The results are robust to different estimation techniques and different control variables. Our findings are consistent with an attribution bias that leads analysts who have experienced a short-lived success to become overconfident in their ability to forecast future earnings.

Suggested Citation

  • Gilles Hilary & Lior Menzly, 2006. "Does Past Success Lead Analysts to Become Overconfident?," Management Science, INFORMS, vol. 52(4), pages 489-500, April.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:4:p:489-500
    DOI: 10.1287/mnsc.1050.0485
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