Events

Dr. PEI Guangyu
Assistant Professor
Department of Economics
The Chinese University of Hong Kong

Using firm-level earnings forecast data, we document (i) that analysts overreact to information and the overreaction is stronger to unfavorable managerial guidance surprises; and (ii) that forecast revisions are not symmetric in guidance surprises and not monotonic either. We propose a simple forecasting model to account for the facts where analysts are uncertain about the quality of managerial guidance and ambiguity (uncertainty)averse. We discipline the model with the data and show that a reasonable degree of ambiguity aversion can rationalize both non-monotonicity and asymmetry, while models with ambiguity neutral or with extreme ambiguity aversion preferences (Maxmin) cannot. Further, the overreaction to information is partly driven by analysts’ ambiguity aversion preferences.