Information in the tails of the distribution of analysts' quarterly earnings forecasts

Cameron Truong, Philip B. Shane, Qiuhong Zhao

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Investors generally measure earnings announcement news on the basis of the difference between actual earnings and two salient benchmarks: earnings in the same quarter the previous year and a consensus drawn from a distribution of forecasts by financial analysts. We evaluate the implications of a third salient benchmark: The most optimistic forecast when actual earnings exceed the consensus and the most pessimistic forecast when the consensus exceeds actual earnings. We find that considering the information in these tails of the distribution of analysts' earnings forecasts enhances the profitability of post-earnings announcement drift strategies.

Original languageEnglish
Pages (from-to)84-99
Number of pages16
JournalFinancial Analysts Journal
Volume72
Issue number5
Publication statusPublished - 1 Sep 2016

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