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Analysts’ optimism and stock crash risk

Published on Dec 3, 2019in Managerial Finance
· DOI :10.1108/MF-11-2018-0540
Hyunkwon Cho , Robert Kim1
Estimated H-index: 1
Abstract
  • References (61)
  • Citations (0)
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References61
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#1Jeong-Bon Kim (CityU: City University of Hong Kong)H-Index: 37
#2Louise Yi Lu (ANU: Australian National University)H-Index: 3
Last. Yangxin Yu (CityU: City University of Hong Kong)H-Index: 8
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ABSTRACT Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect of analyst coverage on ex ante expected crash risk as capt...
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#1Jeewon Jang (Ajou University)H-Index: 3
#2Jangkoo Kang (KAIST)H-Index: 11
We estimate an ex ante probability of extreme negative returns (crashes) of individual stocks as a measure of potential overpricing and find that stocks with a high probability of crashes earn abnormally low returns. Stocks with high crash probability are overpriced regardless of the level of institutional ownership or variations in investor sentiment, and moreover, they exhibit increasing institutional demand until their prices reach the peak of overvaluation. We also find that institutional in...
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#1Wing Him Yeung (Lakehead University)H-Index: 2
#2Camillo Lento (Lakehead University)H-Index: 9
Purpose The purpose of this paper is to examine stock price crash risk (SPCR) as a function of meeting or missing three earnings thresholds – reporting a profit (earnings level), reporting an earnings increase (earnings change) and meeting analysts’ forecasts (earnings expectation). Design/methodology/approach The authors rely upon the research design of Herrmann et al. (2011) to identify the incremental impact of the earnings level and earnings change benchmarks on SPCR, after controlling for t...
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#1David Veenman (UvA: University of Amsterdam)H-Index: 7
#2Patrick Verwijmeren (University of Melbourne)H-Index: 15
ABSTRACT: This study presents evidence suggesting that investors do not fully unravel predictable pessimism in sell-side analysts' earnings forecasts. We show that measures of prior consensus and individual analyst forecast pessimism are predictive of both the sign of firms' earnings surprises and the stock returns around earnings announcements. That is, we find that firms with a relatively high probability of forecast pessimism experience significantly higher announcement returns than those wit...
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#1Jeong†Bon Kim (UW: University of Waterloo)H-Index: 1
#2Zheng Wang (CityU: City University of Hong Kong)H-Index: 7
Last. Liandong Zhang (CityU: City University of Hong Kong)H-Index: 11
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This study examines the association between chief executive officer (CEO) overconfidence and future stock price crash risk. Overconfident managers overestimate the returns to their investment projects and misperceive negative net present value (NPV) projects as value creating. They also tend to ignore or explain away privately observed negative feedback. As a result, negative NPV projects are kept for too long and their bad performance accumulates, which can lead to stock price crashes. Using a ...
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#1S.P. Kothari (MIT: Massachusetts Institute of Technology)H-Index: 51
#2Eric C. So (MIT: Massachusetts Institute of Technology)H-Index: 12
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This survey reviews the literature on sell-side analysts’ forecasts and their implications for asset pricing. We review the literature on the supply and demand forces shaping analysts’ forecasting decisions as well as on the implications of the information they produce for both the cash flow and the discount rate components of security returns. Analysts’ forecasts bring prices in line with the expectations they embody, consistent with the notion that they contain information about future cash fl...
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Purpose - The purpose of this paper is to test opposing views of the relationship between corporate social responsibility (CSR) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach - This paper suggests an endogenous relationship between CSR and stock price crash risk. Hence, this paper uses two-stage least squares regression analysis to address the bias and inconsistency associated with endogeneity issues. Moreover, previous studies argue that the level...
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#1Mark T. Bradshaw (BC: Boston College)H-Index: 19
#2Lian Fen Lee (BC: Boston College)H-Index: 5
Last. Kyle Peterson (UO: University of Oregon)H-Index: 5
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ABSTRACT: The within-year walkdown of analysts' earnings forecasts has largely been attributed to analysts' incentives to curry favor with managers. We appeal to cognitive psychology literature on motivated reasoning and propose that forecasting difficulty interacts with such incentives to yield the observed walkdown. Higher forecasting difficulty generates a wider range of outcomes from which analysts can justify optimistically biased forecasts. In regression analyses, we find that the interact...
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#1Jeong-Bon Kim (UW: University of Waterloo)H-Index: 37
#2Leye Li (UNSW: University of New South Wales)H-Index: 1
Last. Yangxin Yu (CityU: City University of Hong Kong)H-Index: 8
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This study examines the impact of financial statement comparability on ex ante crash risk. Using the comparability measures of De Franco et al. (2011), we find that expected crash risk decreases with financial statement comparability, and this negative relation is more pronounced in an environment where managers are more prone to withhold bad news. We also provide evidence that comparability can mitigate the asymmetric market reaction to bad versus good news disclosures. Our results suggest that...
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Recent research finds that many analyst recommendation revisions take place shortly after earnings announcements. Altinkilic and Hansen (2009) attribute the clustering of recommendations to analysts strategically piggybacking on earnings information to improve the perceived performance of their recommendations. This study proposes an alternative view: I find that analysts issue recommendations when they face greater demand from investors, when the relative supply of information available on earn...
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