Analyst Forecast Revision Momentum and the Post-Forecast Revision Price Drift

• In Event: Accounting Information and Future Stock Returns

Abstract

We document positive serial correlation in analyst consensus forecast revisions and we label this phenomenon forecast revision momentum. We interpret this momentum as evidence that analysts underreact to information produced by their own peers. We then document a direct link between the momentum and the post-forecast revision price drift, a well-established stock market anomaly. Finally, we show that forecast revision momentum and post-forecast revision price drift exhibit similar cross-sectional and inter-temporal variation patterns with respect to a) the nature of the news (good or bad); b) Regulation Fair Disclosure; and c) the timing of earnings announcements. Our findings are consistent with behavioral biases explaining the post-forecast revision price drift.

Authors

• Ganapathi S Narayanamoorthy, University of Illinois at Urbana–Champaign

• Po-Chang Chen, Miami University

• Theodore Sougiannis, University of Illinois at Urbana–Champaign

• Hui Zhou, The University of Melbourne