نظریه چشم انداز، پیش بینی تحلیلگر و بازده سهام

This paper documents how prospect theory can be used to explain stock returns and analysts’ forecast behavior. Positive earnings surprises are associated with increases in abnormal returns but negative earnings surprises have only a limited negative impact on returns. We find that analysts display asymmetric behavior towards positive and negative earnings growth. Analysts’ forecasts are found to be accurate during periods of positive earnings growth, but overly optimistic during periods of negative earnings growth. Our findings have implications for the structuring of investment products, as well as the role of market timing in their introduction.

This paper studies how analysts and investors react to positive and negative events. We analyze the difference in forecast errors that analysts make during both positive and negative earnings growth periods and document the role that investor sentiment plays in the earnings expectation process. Following Tversky and Kahneman’s (1979)prospect theory, we analyze the influence of positive and negative earnings surprises. They have demonstrated how behavioral influences prevent investors from making rational choices and propose a value function whereby the disutility of a loss is much greater than the utility of a gain of the same magnitude. A major contribution of this paper is the use of prospect theory to explain asymmetric stock market reactions resulting from an earnings surprise. Tversky and Kahneman (1991) find that investors suffer a much greater disutility during a loss and are reluctant to realize their losses during negative earnings surprise. Although Levis and Liodakis (2001) find that earnings surprise has an asymmetric impact on growth stocks and value stocks, they do not compare the asymmetric impact of positive and negative earnings surprise on abnormal stock returns, nor link such asymmetric abnormal returns to prospect theory. We find that stock returns react strongly to positive earnings surprise, but negative earnings surprise has no significant impact on returns, implying the presence of investor loss aversion where they are reluctant to realize their losses. We also find that, while analysts are accurate during positive earnings growth, their forecasts are highly optimistic during negative earnings growth. The level of positive forecast error increases as the absolute amount of negative earnings growth increases. While Amir and Ganzach (1998) and Ashiya (2002) found that analysts are over-optimistic when they revise their forecasts downwards, and Hofstedt (1972) reported that forecasters are reluctant to predict negative earnings growth, prior research did not examine the relationship between forecast error and earnings growth. We document that large, overly optimistic forecast errors during periods of negative earnings growth are associated with the presence of positive investor sentiment. Our findings have important implications. First, we provide an empirical test of prospect theory from the stock market effects of earnings announcements. Second, capital-guaranteed investment products may be popular with investors due to investor loss aversion. Third, investor loss aversion indicates that there is usually sufficient time to cut losses after the announcement of a negative event. Fourth, launching new financial products during times of positive sentiment is likely to induce a positive response due to over-optimism, even if the yield or earnings growth from the security could be below expectations. The remainder of the paper is organized as follows. Section 2 reviews the prior related literature. Section 3 describes the data and Section 4 presents our research methodology and hypotheses. The findings are reported in Section 5. Section 6 summarizes and concludes.

The objective of this paper is to examine how analysts and investors react to positive and negative events. We analyze the difference in forecast errors that analysts make during both positive and negative earnings growth periods and document the role that investor sentiment plays in the earnings expectation process. We compute and regress forecast errors on earnings growth, sentiment, and the number of analysts to determine their impact during periods of positive and negative earnings growth. An event study is also performed to examine the announcement effect of actual quarterly EPS under conditions of positive or negative growth, and positive or negative earnings surprise. The 2-day announcement CAR is regressed on earnings growth, earnings surprise, and the number of analysts are run to establish the impact of these variables on stock returns during periods of positive and negative earnings surprise. Using explanations from prospect theory, we find that analysts make larger forecast errors during times of negative earnings growth than during positive ones. They have a tendency to over-estimate EPS during negative earnings growth periods. This indicates that they are either unable or unwilling to forecast an earnings decline. We document that market sentiment has a positive impact on forecast errors during times of negative earnings growth but no significant impact on forecast errors during positive ones. Strong sentiments cause analysts to be overly optimistic during negative earnings growth. This may explain the larger absolute forecast errors during negative earnings growth periods compared to positive periods. Earnings surprise is found to have an asymmetric impact on returns. Increases in positive earnings surprise are associated with an increase in returns but increases in negative earnings surprise have only a slight impact on returns. The utility of a large gain is not proportionately larger than the utility of a small profit. This explains the tendency of investors to realize their profits early. The results of this study are consistent with the propositions of Tversky and Kahneman’s (1979) prospect theory, where gains and losses have an asymmetric impact on the value of a prospect.