Analyst Forecast Dispersion and Aggregate Stock Returns

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Abstract

This paper shows a positive relation between analyst forecast dispersion and future aggregate stock returns, which is contradictory to firm level studies. I further show that the innovations in forecast dispersions are negatively associated with contemporaneous aggregate returns and changes in discount rates These findings suggest that aggregate dispersion covaries with discount rates and dispersions can be interpreted as default risk, rather than idiosyncratic risk. They are also consistent with the argument that corporate selective disclosure is a reason for the dispersion-return relation.

Author

• Guang Ma, National University of Singapore