Does past success lead analysts to become overconfident?

G. HILARY, L. Menzly

Management Science

avril 2006, vol. 52, n°4, pp.489-500

Départements : Comptabilité et Contrôle de Gestion

This paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction. This phenomenon is economically and statistically meaningful. The results are robust to different estimation techniques and different control variables. Our findings are consistent with an attribution bias that leads analysts who have experienced a short-lived success to become overconfident in their ability to forecast future earnings. Author Keywords: overconfidence; cognitive biases; analysts; earnings forecasts KeyWords Plus: SECURITY ANALYSTS; EARNINGS FORECASTS; PERFORMANCE; ATTRIBUTIONS; INFORMATION; CONFORMITY; TEACHERS; CASCADES