Investor reaction to celebrity analysts: The case of earnings forecast revisions

Sarah E. Bonner*, Artur Hugon, Beverly R. Walther

*Corresponding author for this work

Research output: Contribution to journalArticle

47 Scopus citations

Abstract

We examine the effects of analysts' celebrity on investor reaction to earnings forecast revisions. We measure celebrity as the quantity of media coverage analysts receive in sources included in the Dow Jones Interactive database, and find that media coverage is positively related to investor reaction to forecast revisions. The effect of celebrity on the reaction to forecast revisions remains significant after controlling for forecast performance variables examined in prior studies (ex post forecast accuracy, ex ante accuracy, award status, and other variables shown to be related to forecast accuracy). While these results are consistent with the familiarity of the analyst's name affecting the market reaction, we cannot rule out that our measure of celebrity is correlated with error in the performance measures we examine and/or correlated with other unexamined dimensions of forecast performance. A content analysis of a random subsample of the media coverage of our sample analysts suggests that our findings likely are not due to the increased availability of forecast revisions. Finally, an investigation of the excess returns around the quarterly earnings announcement date suggests that market participants react too strongly to forecast revisions issued by analysts with high levels of media coverage. Taken together, these findings suggest that an analyst's level of media coverage can affect the initial market reaction to his forecast revisions.

Original languageEnglish (US)
Pages (from-to)481-513
Number of pages33
JournalJournal of Accounting Research
Volume45
Issue number3
DOIs
StatePublished - Jun 1 2007

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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