The Cross-Sectional Anchoring of Forecasted Earnings per Share and Expected Stock Returns
In this paper, we document that stock returns are significantly higher for firms with high industry median-adjusted forecasted earnings per share (FEPS) than for firms with low industry medianadjusted FEPS. We call this phenomenon the cross-sectional anchoring measure of FEPS effect or the AMFEPS effect. The AMFEPS effect cannot be explained by risk factors, the book-tomarket and earnings-to-price effects, and price and earnings momentum. We hypothesize that the AMFEPS effect is attributed to analysts anchoring biases. The anchoring bias hypothesis suggests three immediate testable implications. First, the AMFEPS effect is more profound for firms with greater information uncertainty. Second, analysts FEPS is more overestimated for low AMFEPS firms than high AMFEPS firms. Third, earnings surprises are relative more positive for high AMFEPS firms than for low AMFEPS firms. Our results support all these hypotheses. Finally, we find that analysts revise their earnings forecasts upward more aggressively for stock-split firms, leading to larger earnings forecast errors and more negative changes of earnings surprises for these firms than for their non-stock-split counterparts. These results are also consistent with the anchoring bias hypothesis.
Forecasted earnings per share anchoring bias cross-section of stock returns
Ling Cen K.C. John Wei Jie Zhang
Department of Finance Hong Kong University of Science and Technology Clear Water Bay,Kowloon,Hong Ko School of Accounting and Finance The Hong Kong Polytechnic University Hung Hom,Kowloon,Hong Kong
国际会议
大连
英文
1-59
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）