Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

3-211

Publication Source

Journal of Economic Behavior & Organization

Volume

77

Issue

3

Start Page

304

Last Page

317

DOI

10.1016/j.jebo.2010.11.003

Abstract

This paper presents evidence that when an analyst makes an out-of-consensus forecast of a company's quarterly earnings that turns out to be incorrect, she escalates her commitment to maintaining an out-of-consensus view on the company. Relative to an analyst who was close to the consensus, the out-of-consensus analyst adjusts her forecasts for the current fiscal year's earnings less in the direction of the quarterly earnings surprise. On average, this type of updating behavior reduces forecasting accuracy, so it does not seem to reflect superior private information. Further empirical results suggest that analysts do not have financial incentives to stand by extreme stock calls in the face of contradictory evidence. Managerial and financial market implications are discussed.

Copyright/Permission Statement

© . This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

escalation of commitment, stock market, updating, behavioral economics

 

Date Posted: 27 November 2017

This document has been peer reviewed.