Analysts' forecast dispersion and stock market anomalies: The role of forecast bias

45 Pages Posted: 1 Oct 2017 Last revised: 10 Nov 2020

See all articles by Tingting Liu

Tingting Liu

Iowa State University

Paul J. Irvine

Neeley School of Business

Date Written: March 18, 2018

Abstract

We show that understanding the role of analysts' forecast bias is central to discovering the behavior that causes some stocks to have high analyst forecast dispersion. This finding is important because stocks with high analyst forecast dispersion contribute significantly to many important anomalies. We first explain how forecast bias produces significant negative future returns in the high dispersion portfolio. Next we examine the effect of these stocks on momentum returns, the profitability anomaly, and post-earnings announcement drift. Finally, we examine the performance of four asset pricing models focusing on the model's ability to explain the returns to these high dispersion stocks.

Suggested Citation

Liu, Tingting and Irvine, Paul J., Analysts' forecast dispersion and stock market anomalies: The role of forecast bias (March 18, 2018). Available at SSRN: https://ssrn.com/abstract=3045479 or http://dx.doi.org/10.2139/ssrn.3045479

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Paul J. Irvine

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

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