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A Closer Look at Analyst Expectations: Stickiness and Confirmation Bias

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  • Keqi Chen

Abstract

This paper provides a closer look at the expectation formation process of individual analyst. Using a detailed analyst earnings forecasts dataset, we document the existence of stickiness and confirmatory bias in individual analyst expectations. When the latest signal about firm fundamentals is inconsistent with prior belief, analysts are subject to confirmation bias, and tend to be stickier to their previous earnings forecasts. Confirmation bias is more serve in the case of positive priors. Besides, we find significant economical evidences in the stock market. Profitability anomalies are stronger for firms which are followed by analysts with serious stickiness and confirmatory bias in expectations. JEL classification numbers: G10, G14, G17. Keywords: Stickiness, Confirmatory bias, Expectation, Analysts forecast.

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  • Keqi Chen, 2020. "A Closer Look at Analyst Expectations: Stickiness and Confirmation Bias," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-15.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:5:f:10_5_15
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    References listed on IDEAS

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    More about this item

    Keywords

    stickiness; confirmatory bias; expectation; analysts forecast.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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