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Title: Analyst Underreaction to Past Information About Earnings: reporting, processing or plain old misspecification bias?
Authors: Constantina, C
Forbes, WP
Skerratt, L
Issue Date: 2000
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 00-14
Abstract: We revisit the debate concerning the interpretation given to prior year’s earnings changes in predicting future earnings as discussed by Abarbanell & Bernard (1992), Francis & Philbrick (1993) and Easterwood and Nutt (1999). We advance a new specification of this relationship which distinguishes between earnings reversion and momentum. On a large UK dataset, we find there is substantial underreaction, particularly in situations of earnings momentum, approximately six times as large as that identified by Abarbanell & Bernard. This suggests that analysts behaviour is still a candidate to explain post earnings announcement drift. We also show that our model performs well relative to a specification recently proposed by Easterwood and Nutt (1999).
Appears in Collections:Dept of Economics and Finance Research Papers

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