Review of Quantitative Finance and Accounting, 15 (2000): 137±151
# 2000 Kluwer Academic Publishers. Manufactured in The Netherlands.
Financial Analysts' Earnings Forecast Dispersion and
Intraday Stock Price Variability Around Quarterly
GERALD J. LOBO
Professor, Syracuse University
SAMUEL S. TUNG
Chair Professor, Hong Kong Baptist University
Abstract. This study investigates the relationship between the dispersion of analysts' earnings forecasts and
stock price variability around quarterly earnings announcements. Consistent with theoretical predictions, the
empirical analysis shows that stock price variability at the time of earnings announcements is positively related to
the degree of analysts' predisclosure earnings forecast dispersion. Additionally, ®rms with high levels of forecast
dispersion exhibit signi®cant increases in price variability for longer periods prior to and following earnings
announcements than do ®rms with low levels of forecast dispersion. These results suggest that there is
information about the earnings announcement that becomes available to at least a subset of investors prior to the
earnings release and that market participants take different amounts of time to process the information conveyed
by the earnings announcement.
Key words: analysts' earnings forecast dispersion, stock price variability, quarterly earnings announcements,
JEL Classi®cation: G14, G20
Since Beaver (1968), there has been a considerable amount of research concerning stock
price and trading volume reactions to the release of earnings and other accounting reports.
This line of research examines the impact of accounting disclosures on stock market
behavior in an effort to understand the effects of such disclosures on market participants'
investment decisions. A question of interest is whether there are cross-sectional
differences in stock price and/or volume reactions to accounting disclosures that are
associated with differences in the predisclosure information environment or other ®rm-
speci®c differences. Knowledge of such differential reactions is relevant to policy-making
bodies because it identi®es conditions under which accounting information is likely to
have a greater or lesser impact on investors' decisions. This study presents empirical
evidence on the relation between ®nancial analysts' predisclosure earnings forecast
dispersion and cross-sectional differences in stock price reactions around quarterly
earnings announcements. It draws on the results of Abarbanell et al. (1995)Ðhereafter
ALVÐwho demonstrate that price variability at the time of earnings announcements is
positively related to investor uncertainty and that ®nancial analysts' earnings forecast
dispersion is a (noisy) measure of investor uncertainty.