An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jeff S Miller
University of Notre Dame

Lisa M Sedor
University of Notre Dame

Abstract: In an experiment, we examine whether observed stock price changes influence analysts’ earnings forecast revisions in the context of varying levels of uncertainty about future earnings. We find that analysts’ earnings forecast revisions are influenced by observed stock price changes when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Additional analyses provide evidence that the effect of uncertainty about future earnings on analysts’ earnings forecast revisions is mediated by analysts’ confidence in their forecasts. Results suggest that part of the association between analysts’ earnings forecast revisions and prior security returns is likely due to analysts observing stock price changes and incorporating price information, either intentionally or unintentionally, into their forecasts.

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