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- Publisher
- Springer Journals
- Copyright
- Copyright © 2007 by Springer Science+Business Media, LLC
- Subject
- Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
- ISSN
- 0924-865X
- eISSN
- 1573-7179
- DOI
- 10.1007/s11156-007-0037-8
- Publisher site
- See Article on Publisher Site
Abstract
We provide an alternative explanation for the previous finding of analysts’ overreaction to extreme good news in earnings. We show that such finding could be a result of analysts’ rational behavior in the face of high earnings uncertainty rather than their cognitive bias. Extreme earnings performance tends to be associated with higher earnings uncertainty that generally leads to more forecast optimism. Once this effect is accounted for, the univariate result of analysts’ overreaction to extreme good news in earnings is subsumed, leaving only their underreaction in general.
Journal
Review of Quantitative Finance and Accounting – Springer Journals
Published: Oct 18, 2007