Investor Sentiment and Management Earnings Forecast Bias

Forthcoming, Journal of Business Finance and Accounting

35 Pages Posted: 17 Jan 2017 Last revised: 16 Sep 2017

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2017


This study investigates whether investor sentiment is associated with behavioral bias in managers’ annual earnings forecasts that are generally issued early in the year when uncertainty is relatively high. I provide evidence that management earnings forecast optimism increases with investor sentiment. Furthermore, I find that managers’ annual earnings forecasts are more pessimistic during low-sentiment periods than during normal-sentiment periods. Since managers lack incentives to further deflate stock prices during a low-sentiment period, this evidence indicates that sentiment-related management earnings forecast bias is likely to be unintentional. In addition, I find that the relation between management earnings forecast bias and investor sentiment is stronger for firms with higher uncertainty, consistent with investor sentiment having a greater influence on management earnings forecasts when uncertainty is higher.

Keywords: management forecast bias, investor sentiment, behavioral bias

JEL Classification: G02, M41

Suggested Citation

Hurwitz, Helen, Investor Sentiment and Management Earnings Forecast Bias (September 15, 2017). Forthcoming, Journal of Business Finance and Accounting, Available at SSRN:

Helen Hurwitz (Contact Author)

Saint Louis University ( email )

220 North Grand Boulevard
St. Louis, MO 63103
United States
314-977-3841 (Phone)

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