Analysts’ Forecasts and Asset Pricing: A Survey
Name
Analysts-Forecasts-Asset-Pricing-SP-Kothari- Eric-So.pdf
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1.63 MB
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Author(s)
Kothari, S. P.
So, Eric
Verdi, Rodrigo
Date Issued
October 2016
Journal
Annual Review of Financial Economics
Publisher
Annual Reviews
Citation
Kothari, S.P. et al. “Analysts’ Forecasts and Asset Pricing: A Survey.” Annual Review of Financial Economics 8, 1 (October 2016): 197–219 © 2016 Annual Reviews
Version
Author's final manuscript
Abstract
This survey reviews the literature on sell-side analysts’ forecasts and their implications for asset pricing. We review the literature on the supply and demand forces shaping analysts’ forecasting decisions as well as on the implications of the information they produce for both the cash flow and the discount rate components of security returns. Analysts’ forecasts bring prices in line with the expectations they embody, consistent with the notion that they contain information about future cash flows. However, analysts’ forecasts exhibit predictable biases, and the market appears to underreact to the information in forecasts and to not fully filter the biases in forecasts. Analysts’ forecasts are also helpful in estimating expected returns on securities, but evidence on the relation between analysts’ forecasts and expected returns is still scarce. We conclude by identifying unanswered questions and offering suggestions for future research.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1146/annurev-financial-121415-032930
