Analysts Reliance on the Capital Market’s Estimate For Firm Growth Potential: An Empirical Analysis Of Forecast Error and Bias

Vol. 4 No. 2

Year : 2009

Issue : Sep-Nov

Title  : Analysts Reliance on the Capital Market’s Estimate For Firm Growth Potential: An Empirical Analysis Of Forecast Error and Bias 

Author Name  : Lonnie Bryant, Jocelyn D. Evans , Peter S. Knox 

Synopsis  : 

The popular press often states that analyst decisions over an extended time period have significant influence over security prices. It is often assumed that analysts add value by conducting in-depth research on public traded firms that enable investors to gauge the attractiveness of each stock. We analysis whether either analyst forecast error or the magnitude of error bias affect the market’s estimated of a firm’s future growth potential as measured by Tobin’s Q and vice-versa. The findings show that analyst have no influence over capital market perception of firm value. Instead, analyst forecast error and bias herds around movement in Tobin’s Q. (JEL G10, G29).