Investor Sentiment and Management Earnings Forecast Bias

18 Pages Posted: 8 Feb 2018

Multiple version iconThere are 2 versions of this paper

Date Written: January/February 2018


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 relationship 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: investor sentiment, management earnings forecast bias, managerial behavioral bias

Suggested Citation

Hurwitz, Helen, Investor Sentiment and Management Earnings Forecast Bias (January/February 2018). Journal of Business Finance & Accounting, Vol. 45, Issue 1-2, pp. 166-183, 2018, Available at SSRN: or

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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