Investor Sophistication and Market Earnings Expectations

摘要: This paper investigates whether sophisticated investors rely more on analyst forecasts than time-series model in forming expected earnings. Specifically, I investigate if earnings-announcement-related returns are closely associated with (SRW) for firms which the marginal investor is (less) likely to be sophisticated. My proxies sophistication institutional ownership, following, and firm size (Atiase [1985], Hand [1990]). predict that market participants place weight forecast high large firms. For a sample of 89,246 firm-quarter observations over 1980-1995, find placed increasing (decreasing) size. Forecast availability (as captured by publication The Wall Street Journal) or accuracy cannot account these findings. Overall, my results suggest earnings expectations do not consistently resemble either SRW forecasts. Rather, cross-sectional variation relative weights two related investor.