Broker-analysts' earnings forecast bias and their trade-boosting incentive.
Item
-
Title
-
Broker-analysts' earnings forecast bias and their trade-boosting incentive.
-
Identifier
-
AAI9510677
-
identifier
-
9510677
-
Creator
-
Kim, Chansog.
-
Contributor
-
Adviser: Steven B. Lilien
-
Date
-
1994
-
Language
-
English
-
Publisher
-
City University of New York.
-
Subject
-
Business Administration, Accounting | Economics, Finance
-
Abstract
-
There is a well documented optimism in analysts' earnings forecasts. For non-broker analysts (i.e., Value Line), evidence indicates that this optimism is due to the incentive to cultivate relations with management (the management relation incentive). Alternatively, broker-analysts (i.e., Duff & Phelps) have the additional incentive to be optimistic to stimulate stock trades (the trade-boosting incentive). For a sample of 998 matched forecasts, this research contrasts the forecast bias of these groups to test for the presence of broker-analysts' trade-boosting incentive. Results indicate that the optimistic bias for stocks with buy recommendations is greater for broker-analysts than for non-broker analysts. For sell stocks, the bias is lower for broker-analysts. These results are consistent with the existence of broker-analysts' trade-boosting incentive.;The management relation incentive also predicts that non-broker analysts' forecasts are more optimistically biased for hold stocks than buy stocks. This paper shows the opposite for broker-analysts' forecasts. These results imply that broker-analysts' trade-boosting incentive dominates the management relation incentive for buy stocks.;In the absence of the trade-boosting incentive, broker-analysts' forecasts for all stock recommendations would be less optimistic than non-broker analysts' forecasts, because broker-analysts' stock recommendations have more buys. In contrast, this study finds that there is no difference in total forecast bias for all recommendations between broker and non-broker analysts. These results suggest that the trade-boosting incentive provides an alternative explanation for the general optimism observed in broker-analysts' forecasts in addition to the management relation incentive and the investment banking incentive.;Finally, the investors' ability to adjust for analysts' forecast bias predicts that the regression coefficients of broker-analysts' forecast errors are smaller (larger) than those of non-broker analysts' forecast errors for buy (sell) stocks. The results do not suggest that investors adjust for analysts' forecast bias.
-
Type
-
dissertation
-
Source
-
PQT Legacy CUNY.xlsx
-
degree
-
Ph.D.
