A Reexamination of Bias in Management Earnings Forecasts
type: CreativeWork
description: This study finds that short-horizon MEF are pessimistically biased , while long-horizon MEF are optimistically biased. Previous claims that management earnings forecasts are unbiased could be driven by the cancellation effect that occurs between long-term optimistic bias and short-term pessimistic bias. The magnitude of bias is associated with three ex-ante factors---unexpected earnings, forecast horizon and firm size. Although the magnitude of the bias is predictable with these three factors, it seems that investors naively respond to bias component in the forecasts at MEF announcement. The bias in management earnings forecasts causes subsequent stock price reversal when subsequent earnings report are announced. In conclusion, initially, the market mechanistically responds to the biased MEF and subsequently corrects itself by reversing the previous overreaction.
abstract: This study finds that short-horizon MEF are pessimistically biased , while long-horizon MEF are optimistically biased. Previous claims that management earnings forecasts are unbiased could be driven by the cancellation effect that occurs between long-term optimistic bias and short-term pessimistic bias. The magnitude of bias is associated with three ex-ante factors---unexpected earnings, forecast horizon and firm size. Although the magnitude of the bias is predictable with these three factors, it seems that investors naively respond to bias component in the forecasts at MEF announcement. The bias in management earnings forecasts causes subsequent stock price reversal when subsequent earnings report are announced. In conclusion, initially, the market mechanistically responds to the biased MEF and subsequently corrects itself by reversing the previous overreaction.
author: Choi, Jong-Hag
language: eng
keywords: Business Administration, Accounting
date published: 2015-09-28T15:39:26Z
date modified: 2026-07-22T22:26:28Z
provider: University of Illinois - Urbana-Champaign
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Illinois at Urbana-Champaign

PropertyValue
property ID: Handle
value: http://hdl.handle.net/2142/87173