Speaker: PEI Guangyu,Department of Economics,Chinese University of Hong Kong
Venue: Online, Tencent Conference(ID:803 511 877)
Abstract: Using firm-level earnings forecasts and managerial guidance data, we construct guidance surprises for analysts, i.e., differences between managerial guidance and analysts’ initial forecasts. We document new evidence on expectation formation: (i) analysts overreact to guidance surprises; (ii) the overreaction is stronger for negative guidance surprises but weaker for larger surprises; and (iii) forecast revisions are neither symmetric in guidance surprises nor monotonic. We organize these facts with a model where analysts are uncertain about the quality of managerial guidance. Structural estimation reveals that a reasonable degree of ambiguity aversion is necessary to account for the documented heterogeneous overreaction.