{"id":{"repo_id":"rosario","oai_identifier":"oai:repository.urosario.edu.co:10336/18661"},"canonical_url":"https://search.dev.ndltd.org/etd/rosario/oai:repository.urosario.edu.co:10336/18661","repository":{"repo_id":"rosario","name":"Universidad del Rosario","base_url":"https://repository.urosario.edu.co/oai/request"},"display":{"title":"When Do Signals Counteract The Effects of Confirmation Bias? Evidence From Sell-Side Analysts’ Forecasts","abstract":"I empirically study whether strong signals counteract the effects of confirmation bias in sell-side analysts’ stock price forecasts when these signals are contradictory. I use target prices to measure forecast bias and the growth in Earnings Per Share as signals, and regress analysts’ forecast bias over different deciles of high signals interacted with prior negative forecast bias in a dynamic panel data model. I find that analysts underreact to favorable signals when the prior is pessimistic, except for sufficiently strong signals which cause analysts to issue more optimistic target prices. Also, that analysts underreact to low signals, except for sufficiently low signals.","abstract_html":"I empirically study whether strong signals counteract the effects of confirmation bias in sell-side analysts’ stock price forecasts when these signals are contradictory. I use target prices to measure forecast bias and the growth in Earnings Per Share as signals, and regress analysts’ forecast bias over different deciles of high signals interacted with prior negative forecast bias in a dynamic panel data model. I find that analysts underreact to favorable signals when the prior is pessimistic, except for sufficiently strong signals which cause analysts to issue more optimistic target prices. Also, that analysts underreact to low signals, except for sufficiently low signals.","abstract_has_math":false,"creators":["Astaiza, José Gabriel"],"institution":"Universidad del Rosario","degree_name":null,"degree_level":null,"degree_discipline":null,"degree_department":null,"school":null,"contributors":[],"advisors":[],"committee_chairs":[],"committee_members":[],"year":2018,"date_issued":"2018-10-24","date_published":"2018-10-24","updated_at":"2026-07-27T20:47:08Z","subjects":["Earnings growth","Pessimistic prior","Overreaction to signals","Contradictory signals","Producción","Precios","Ganancias","Pronóstico de la economía"],"languages":["spa"],"rights":["info:eu-repo/semantics/openAccess"],"rights_urls":[],"identifier_entries":[{"key":"dc:identifier","label":"Identifier","values":["http://repository.urosario.edu.co/handle/10336/18661"],"render_values":[{"text":"http://repository.urosario.edu.co/handle/10336/18661","href":"http://repository.urosario.edu.co/handle/10336/18661","code":true}]}]},"links":{"outbound_url":"https://doi.org/10.48713/10336_18661","outbound_label":"DOI","outbound_source":"dc:identifier"},"metadata_groups":[{"id":"people","label":"People","entries":[{"key":"dc:creator","label":"Author","values":["Astaiza, José Gabriel"]}]},{"id":"academic_context","label":"Academic Context","entries":[{"key":"dc:date","label":"Dc Date","values":["2018-10-24","2018-10-29T16:54:33Z"]},{"key":"dc:publisher","label":"Institution","values":["Universidad del Rosario","Facultad de Economía","Maestría en Economía"]},{"key":"dc:type","label":"Dc Type","values":["info:eu-repo/semantics/masterThesis","info:eu-repo/semantics/acceptedVersion"]}]},{"id":"subjects_keywords","label":"Subjects and Keywords","entries":[{"key":"dc:subject","label":"Dc Subject","values":["Earnings growth","Pessimistic prior","Overreaction to signals","Contradictory signals","Producción","Precios","Ganancias","Pronóstico de la economía"]}]},{"id":"language_rights","label":"Language and Rights","entries":[{"key":"dc:language","label":"Dc Language","values":["spa"]},{"key":"dc:rights","label":"Dc Rights","values":["info:eu-repo/semantics/openAccess"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier","label":"Identifier","values":["https://doi.org/10.48713/10336_18661","http://repository.urosario.edu.co/handle/10336/18661"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description","label":"Description","values":["I empirically study whether strong signals counteract the effects of confirmation bias in sell-side analysts’ stock price forecasts when these signals are contradictory. I use target prices to measure forecast bias and the growth in Earnings Per Share as signals, and regress analysts’ forecast bias over different deciles of high signals interacted with prior negative forecast bias in a dynamic panel data model. I find that analysts underreact to favorable signals when the prior is pessimistic, except for sufficiently strong signals which cause analysts to issue more optimistic target prices. Also, that analysts underreact to low signals, except for sufficiently low signals."]},{"key":"dc:format","label":"Dc Format","values":["application/pdf"]},{"key":"dc:source","label":"Dc Source","values":["Abarbanell, J. S. and Bernard, V. L. (1992). Tests of analysts’ overreaction/underreaction to earnings information as an Explanation for Anomalous Stock Price Behavior. The Journal of Finance, 47(3), 1181 - 1207.","Abarbanell, J. and Lehavy, R. (2003). Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts’ Earnings Forecasts. Journal of Accounting and Economics, 36, 105 - 146.","Ackert, L. F., and Hunter, W. C. (1995). Rational Expectations and Security Analysts’ Earnings Forecasts. Financial Review, 30(3), 427-443.","Ali, A., Klein, A. and Rosenfeld J. (1992). Analysts’ Use of Information about Permanent and Transitory Earnings Components in Forecasting Annual EPS. Accounting Review, 67(1), 183 - 198.","Arellano, M. and Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277 - 294.","Arellano, M. and Bover, O. (1995). Another Look at the Instrumental Variables Estimation of Error- Component Models. Journal of Econometrics, 68, 29 - 51","Asquith, P., M. B. Mikhail and A. S. Au. (2005). Information Content of Equity Analyst Reports. Journal of Financial Economics, 75(2), 245 - 82.","Beaver, W. H. (2002). Perspectives on Recent Capital Market Research. The Accounting Review, 77(2), 453 - 474.","Ben-Rephael, A., Da, Z. and Israelsen, R. (2017). It Depends on Where You Search: Institutional Investor Attention and Underreaction to News. Review of Financial Studies, 30(9), 3009-3047.","Beyer, A. and Guttman, I. (2011). The Effect of Trading Volume on Analysts’ Forecast Bias. The Accounting Review, 86(2), 451 - 481.","Bradshaw, M. (2002). The Use of Target Prices to Justify Sell-Side Analysts’ Stock Recommendations. Accounting Horizons, 16(1), 27 - 41.","Bradshaw, M. T., Brown, L. D., and Huang, K. (2013). Do Sell-Side Analysts Exhibit Differential Target","Brav, A., and Lehavy, R. (2003). An Empirical Analysis of Analysts’ Target Prices: Short-Term Informativeness and Long-Term Dynamics. The Journal of Finance, 58(5) , 1933 - 1967.","Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, on the Internet at https://www.bls.gov/ooh/business-and-financial/financial-analysts.htm (visited August 17, 2017).","Butler, K.C., and Saraoglu, H. (1999). Improving Analysts’ Negative Earnings Forecasts. Financial Analysts Journal, 48 - 56.","Cen, L., Hilary, G., and Wei, K. (2013). The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns. Journal of Financial and Quantitative Analysis,","Clement, M. B., Hales, J. and Xue, Y. (2011). Understanding Analysts’ Use of Stock Returns and Other Analysts’ Revisions When Forecasting Earnings. Journal of Accounting and Economics, 51, 279 - 299.","Cowen, A., Groysberg, B. and Healy, P. (2006). Which Types of Analyst Firms Are More Optimistic? Journal of Accounting and Economics, 41, 119 - 146.","Chang, J. W., and Choi, H. M. (2017). Analyst Optimism and Incentives under Market Uncertainty. Financial Review, 52(3), 307-345.","Chen, Q., Goldstein, I., and Jiang, W. (2007). Price Informativeness and Investment Sensitivity to Stock Price. The Review of Financial Studies, 20(3), 619-650.","DeBondt, W. F. M. and Thaler, R. (1990). Do Security Analysts Overreact? The American Economic Review, 80(2), 52 - 27.","DeLong, B., Shleifer, A., Summers, L., and Waldmann, R. (1990). Positive Feedback Investment Strategies and Destabilizing Rational Speculation. The Journal of Finance, 45(2), 379 - 395.","Easterwood, J. C. and Nutt, S. R. (1999). Inefficiency in Analysts’ Earnings Forecasts: Systematic Misreaction or SystematicOptimism? The Journal of Finance, 54(5), 1777 - 1797.","Eil, D., and Rao, J. M. (2011). The good news-bad news effect: asymmetric processing of objective information about yourself. American Economic Journal: Microeconomics, 3(2), 114-38.","Fischer, P. E. and Stocken, P. C. (2010). Analyst Information Acquisition and Communication. The Accounting Review, 85(6), 1985 - 2009.","Fishman, M. J., and Hagerty, K. M. (1989). Disclosure Decisions by Firms and the Competition for Price Efficiency. The Journal of Finance, 44(3), 633-646.","Givoly, D., Hayn, C. and Lehavy, R. (2009). The Quality of Analysts’ Cash Flow Forecasts. The Accounting Review, 84(6), 877 - 1911.","Grossman, S. J., and Stiglitz, J. E. (1976). Information and Competitive Price Systems. The American Economic Review, 66(2), 246 - 253.","Gleason, C. A., Bruce Johnson, W., and Li, H. (2013). Valuation Model Use and the Price Target Performance of Sell Side Equity Analysts. Contemporary Accounting Research, 30(1), 80-115.","Grossman, S. J., and J. E. Stiglitz. (1980). On the Impossibility of Informationally Efficient Markets. The American Economic Review, 70(3), 393 - 408.","Groysberg, B., Healy, P. M., and Maber, D. A. (2011). What Drives Sell Side Analyst Compensation at High Status Investment Banks? Journal of Accounting Research, 49(4), 969-1000.","Hayes, R. M. (1998). The Impact of Trading Commission Incentives on Analysts’ Stock Coverage Decisions and Earnings Forecasts. Journal of Accounting Research, 36(2), 299 - 320.","Jackson, A. R. (2005). Trade Generation, Reputation, and Sell-Side Analysts. The Journal of Finance, 60(2), 673 - 717.","Kartik, N., Ottaviani, M. ans Squintani, F. (2007). Credulity, Lies, and Costly Talk. Journal of Economic Theory, 134, 93 - 116.","Keane, M. P., and Runkle, D. E. (1998). Are Financial Analysts’ Forecasts of Corporate Profits Rational? Journal of Political Economy, 106(4), 768-805.","Lin, H., and McNichols, M. F. (1998). Underwriting Relationships, Analysts’ Earnings Forecasts and Investment Recommendations. Journal of Accounting and Economics, 25, 101 - 127.","Lim, T. (2001). Rationality and analysts’ forecast bias. The Journal of Finance, 56(1), 369-385.","Loh, R. K. and Stulz, R. M. (2018), Is Sell-Side Research More Valuable in Bad Times? The Journal of Finance, 73(3), 959-1013.","McNichols, M.,O’Brien,P. (1997). Self-Selection and Analyst Coverage. Journalof Accounting Research, 35,167 - 199.","Merkley, K., Michaely, R. and Pacelli, J. (2017). Does the Scope of the Sell-Side Analyst Industry Matter? An Examination of Bias, Accuracy, and Information Content of Analyst Reports. The Journal of Finance, 72(3), 1285 - 1334.","Mikhail, M. B., Walther, B. R., and Willis, R. H. (1999). Does Forecast Accuracy Matter to Security Analysts? The Accounting Review, 74(2), 185-200.","Nickerson, R. S. (1998). Confirmation Bias: A Ubiquitous Phenomenon in Many Guises. Review of General Psychology, 2(2), 175.","Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49, 1417 - 1426.","Niehaus, G. and Zhang, D. (2010). The Impact of Sell-Side Analyst Research Coverage on an Affiliated Broker’s Market Share of Trading Volume. Journal of Banking & Finance, 34, 776 - 787.","O’Brien, P. (1990). Forecast Accuracy of Individual Analysts in Nine Industries. Journal of Accounting Research, 28(2), 286 - 304.","Pouget, S., Sauvagnat, J. and Villeneuve, S. (2017). A Mind Is a Terrible Thing to Change: Confirmatory Bias in Financial Markets. The Review of Financial Studies, 30(6), 2066 - 2119","Rabin, M., and J. Schrag. (1999). First Impressions Matter: A Model of Confirmatory Bias. Quarterly Journal of Economics, 114, 37 - 82.","Wigglesworth, Robin (2017). Final call for the research analyst? Financial Times, on the Internet at https://www.ft.com/content/85ee225a-ec4e-11e6-930f-061b01e23655 (visited September 02, 2017).","instname:Universidad del Rosario","reponame:Repositorio Institucional EdocUR"]},{"key":"dc:title","label":"Title","values":["When Do Signals Counteract The Effects of Confirmation Bias? Evidence From Sell-Side Analysts’ Forecasts"]}]}],"canonical_facts":{"dc:creator":["Astaiza, José Gabriel"],"dc:date":["2018-10-24","2018-10-29T16:54:33Z"],"dc:description":["I empirically study whether strong signals counteract the effects of confirmation bias in sell-side analysts’ stock price forecasts when these signals are contradictory. I use target prices to measure forecast bias and the growth in Earnings Per Share as signals, and regress analysts’ forecast bias over different deciles of high signals interacted with prior negative forecast bias in a dynamic panel data model. I find that analysts underreact to favorable signals when the prior is pessimistic, except for sufficiently strong signals which cause analysts to issue more optimistic target prices. Also, that analysts underreact to low signals, except for sufficiently low signals."],"dc:format":["application/pdf"],"dc:identifier":["https://doi.org/10.48713/10336_18661","http://repository.urosario.edu.co/handle/10336/18661"],"dc:language":["spa"],"dc:publisher":["Universidad del Rosario","Facultad de Economía","Maestría en Economía"],"dc:rights":["info:eu-repo/semantics/openAccess"],"dc:source":["Abarbanell, J. S. and Bernard, V. L. (1992). Tests of analysts’ overreaction/underreaction to earnings information as an Explanation for Anomalous Stock Price Behavior. The Journal of Finance, 47(3), 1181 - 1207.","Abarbanell, J. and Lehavy, R. (2003). Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts’ Earnings Forecasts. Journal of Accounting and Economics, 36, 105 - 146.","Ackert, L. F., and Hunter, W. C. (1995). Rational Expectations and Security Analysts’ Earnings Forecasts. Financial Review, 30(3), 427-443.","Ali, A., Klein, A. and Rosenfeld J. (1992). Analysts’ Use of Information about Permanent and Transitory Earnings Components in Forecasting Annual EPS. Accounting Review, 67(1), 183 - 198.","Arellano, M. and Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277 - 294.","Arellano, M. and Bover, O. (1995). Another Look at the Instrumental Variables Estimation of Error- Component Models. Journal of Econometrics, 68, 29 - 51","Asquith, P., M. B. Mikhail and A. S. Au. (2005). Information Content of Equity Analyst Reports. Journal of Financial Economics, 75(2), 245 - 82.","Beaver, W. H. (2002). Perspectives on Recent Capital Market Research. The Accounting Review, 77(2), 453 - 474.","Ben-Rephael, A., Da, Z. and Israelsen, R. (2017). It Depends on Where You Search: Institutional Investor Attention and Underreaction to News. Review of Financial Studies, 30(9), 3009-3047.","Beyer, A. and Guttman, I. (2011). The Effect of Trading Volume on Analysts’ Forecast Bias. The Accounting Review, 86(2), 451 - 481.","Bradshaw, M. (2002). The Use of Target Prices to Justify Sell-Side Analysts’ Stock Recommendations. Accounting Horizons, 16(1), 27 - 41.","Bradshaw, M. T., Brown, L. D., and Huang, K. (2013). Do Sell-Side Analysts Exhibit Differential Target","Brav, A., and Lehavy, R. (2003). An Empirical Analysis of Analysts’ Target Prices: Short-Term Informativeness and Long-Term Dynamics. The Journal of Finance, 58(5) , 1933 - 1967.","Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, on the Internet at https://www.bls.gov/ooh/business-and-financial/financial-analysts.htm (visited August 17, 2017).","Butler, K.C., and Saraoglu, H. (1999). Improving Analysts’ Negative Earnings Forecasts. Financial Analysts Journal, 48 - 56.","Cen, L., Hilary, G., and Wei, K. (2013). The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns. Journal of Financial and Quantitative Analysis,","Clement, M. B., Hales, J. and Xue, Y. (2011). Understanding Analysts’ Use of Stock Returns and Other Analysts’ Revisions When Forecasting Earnings. Journal of Accounting and Economics, 51, 279 - 299.","Cowen, A., Groysberg, B. and Healy, P. (2006). Which Types of Analyst Firms Are More Optimistic? Journal of Accounting and Economics, 41, 119 - 146.","Chang, J. W., and Choi, H. M. (2017). Analyst Optimism and Incentives under Market Uncertainty. Financial Review, 52(3), 307-345.","Chen, Q., Goldstein, I., and Jiang, W. (2007). Price Informativeness and Investment Sensitivity to Stock Price. The Review of Financial Studies, 20(3), 619-650.","DeBondt, W. F. M. and Thaler, R. (1990). Do Security Analysts Overreact? The American Economic Review, 80(2), 52 - 27.","DeLong, B., Shleifer, A., Summers, L., and Waldmann, R. (1990). Positive Feedback Investment Strategies and Destabilizing Rational Speculation. The Journal of Finance, 45(2), 379 - 395.","Easterwood, J. C. and Nutt, S. R. (1999). Inefficiency in Analysts’ Earnings Forecasts: Systematic Misreaction or SystematicOptimism? The Journal of Finance, 54(5), 1777 - 1797.","Eil, D., and Rao, J. M. (2011). The good news-bad news effect: asymmetric processing of objective information about yourself. American Economic Journal: Microeconomics, 3(2), 114-38.","Fischer, P. E. and Stocken, P. C. (2010). Analyst Information Acquisition and Communication. The Accounting Review, 85(6), 1985 - 2009.","Fishman, M. J., and Hagerty, K. M. (1989). Disclosure Decisions by Firms and the Competition for Price Efficiency. The Journal of Finance, 44(3), 633-646.","Givoly, D., Hayn, C. and Lehavy, R. (2009). The Quality of Analysts’ Cash Flow Forecasts. The Accounting Review, 84(6), 877 - 1911.","Grossman, S. J., and Stiglitz, J. E. (1976). Information and Competitive Price Systems. The American Economic Review, 66(2), 246 - 253.","Gleason, C. A., Bruce Johnson, W., and Li, H. (2013). Valuation Model Use and the Price Target Performance of Sell Side Equity Analysts. Contemporary Accounting Research, 30(1), 80-115.","Grossman, S. J., and J. E. Stiglitz. (1980). On the Impossibility of Informationally Efficient Markets. The American Economic Review, 70(3), 393 - 408.","Groysberg, B., Healy, P. M., and Maber, D. A. (2011). What Drives Sell Side Analyst Compensation at High Status Investment Banks? Journal of Accounting Research, 49(4), 969-1000.","Hayes, R. M. (1998). The Impact of Trading Commission Incentives on Analysts’ Stock Coverage Decisions and Earnings Forecasts. Journal of Accounting Research, 36(2), 299 - 320.","Jackson, A. R. (2005). Trade Generation, Reputation, and Sell-Side Analysts. The Journal of Finance, 60(2), 673 - 717.","Kartik, N., Ottaviani, M. ans Squintani, F. (2007). Credulity, Lies, and Costly Talk. Journal of Economic Theory, 134, 93 - 116.","Keane, M. P., and Runkle, D. E. (1998). Are Financial Analysts’ Forecasts of Corporate Profits Rational? Journal of Political Economy, 106(4), 768-805.","Lin, H., and McNichols, M. F. (1998). Underwriting Relationships, Analysts’ Earnings Forecasts and Investment Recommendations. Journal of Accounting and Economics, 25, 101 - 127.","Lim, T. (2001). Rationality and analysts’ forecast bias. The Journal of Finance, 56(1), 369-385.","Loh, R. K. and Stulz, R. M. (2018), Is Sell-Side Research More Valuable in Bad Times? The Journal of Finance, 73(3), 959-1013.","McNichols, M.,O’Brien,P. (1997). Self-Selection and Analyst Coverage. Journalof Accounting Research, 35,167 - 199.","Merkley, K., Michaely, R. and Pacelli, J. (2017). Does the Scope of the Sell-Side Analyst Industry Matter? An Examination of Bias, Accuracy, and Information Content of Analyst Reports. The Journal of Finance, 72(3), 1285 - 1334.","Mikhail, M. B., Walther, B. R., and Willis, R. H. (1999). Does Forecast Accuracy Matter to Security Analysts? The Accounting Review, 74(2), 185-200.","Nickerson, R. S. (1998). Confirmation Bias: A Ubiquitous Phenomenon in Many Guises. Review of General Psychology, 2(2), 175.","Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49, 1417 - 1426.","Niehaus, G. and Zhang, D. (2010). The Impact of Sell-Side Analyst Research Coverage on an Affiliated Broker’s Market Share of Trading Volume. Journal of Banking & Finance, 34, 776 - 787.","O’Brien, P. (1990). Forecast Accuracy of Individual Analysts in Nine Industries. Journal of Accounting Research, 28(2), 286 - 304.","Pouget, S., Sauvagnat, J. and Villeneuve, S. (2017). A Mind Is a Terrible Thing to Change: Confirmatory Bias in Financial Markets. The Review of Financial Studies, 30(6), 2066 - 2119","Rabin, M., and J. Schrag. (1999). First Impressions Matter: A Model of Confirmatory Bias. Quarterly Journal of Economics, 114, 37 - 82.","Wigglesworth, Robin (2017). Final call for the research analyst? Financial Times, on the Internet at https://www.ft.com/content/85ee225a-ec4e-11e6-930f-061b01e23655 (visited September 02, 2017).","instname:Universidad del Rosario","reponame:Repositorio Institucional EdocUR"],"dc:subject":["Earnings growth","Pessimistic prior","Overreaction to signals","Contradictory signals","Producción","Precios","Ganancias","Pronóstico de la economía"],"dc:title":["When Do Signals Counteract The Effects of Confirmation Bias? Evidence From Sell-Side Analysts’ Forecasts"],"dc:type":["info:eu-repo/semantics/masterThesis","info:eu-repo/semantics/acceptedVersion"]},"updated_at":"2026-07-27T20:47:08Z"}