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- Publisher Website: 10.1016/j.jet.2024.105839
- Scopus: eid_2-s2.0-85190520589
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Article: Heterogeneous Overreaction in Expectation Formation: Evidence and Theory
Title | Heterogeneous Overreaction in Expectation Formation: Evidence and Theory |
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Authors | |
Keywords | Ambiguity aversion Asymmetry Expectation formation Managerial guidance Non-monotone Overreaction |
Issue Date | 12-Apr-2024 |
Publisher | Elsevier |
Citation | Journal of Economic Theory, 2024, v. 218 How to Cite? |
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 managerial guidance and the overreaction is state-dependent, i.e., it is stronger for negative guidance surprises but weaker for surprises that are larger in size; and (ii) 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. We show that a reasonable degree of ambiguity aversion is necessary to account for the documented heterogeneous overreaction pattern. |
Persistent Identifier | http://hdl.handle.net/10722/342763 |
ISSN | 2021 Impact Factor: 1.790 2020 SCImago Journal Rankings: 3.689 |
DC Field | Value | Language |
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dc.contributor.author | Chen, Heng | - |
dc.contributor.author | Li, Xu | - |
dc.contributor.author | Pei, Guangyu | - |
dc.contributor.author | Xin, Qian | - |
dc.date.accessioned | 2024-04-24T02:46:59Z | - |
dc.date.available | 2024-04-24T02:46:59Z | - |
dc.date.issued | 2024-04-12 | - |
dc.identifier.citation | Journal of Economic Theory, 2024, v. 218 | - |
dc.identifier.issn | 0022-0531 | - |
dc.identifier.uri | http://hdl.handle.net/10722/342763 | - |
dc.description.abstract | <p>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 managerial guidance and the overreaction is state-dependent, i.e., it is stronger for negative guidance surprises but weaker for surprises that are larger in size; and (ii) 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. We show that a reasonable degree of ambiguity aversion is necessary to account for the documented heterogeneous overreaction pattern.<br></p> | - |
dc.language | eng | - |
dc.publisher | Elsevier | - |
dc.relation.ispartof | Journal of Economic Theory | - |
dc.subject | Ambiguity aversion | - |
dc.subject | Asymmetry | - |
dc.subject | Expectation formation | - |
dc.subject | Managerial guidance | - |
dc.subject | Non-monotone | - |
dc.subject | Overreaction | - |
dc.title | Heterogeneous Overreaction in Expectation Formation: Evidence and Theory | - |
dc.type | Article | - |
dc.identifier.doi | 10.1016/j.jet.2024.105839 | - |
dc.identifier.scopus | eid_2-s2.0-85190520589 | - |
dc.identifier.volume | 218 | - |
dc.identifier.eissn | 1095-7235 | - |
dc.identifier.issnl | 0022-0531 | - |