Analyst Forecast Revisions and Overconfidence

Abstract

We find evidence that supports the notion that analysts who provide extreme forecast revisions are overconfident, especially in assessing the earnings prospects of high information uncertainty firms. We further examine whether analyst overconfidence is associated with stock market performance, and find that a portfolio of extreme forecast revisions underperforms a portfolio of modest forecast revisions in high information uncertainty firms, but not in low information uncertainty firms. Finally, we find that experienced analysts are more overconfident than inexperienced analysts, particularly for high information uncertainty firms, suggesting that analysts do not reduce their overconfidence bias by learning from experience.