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Is There Safety in Numbers? The Effects of Forecast Accuracy and Forecast Boldness on Financial Analysts’ Credibility with Investors
Kathryn Kadous, Emory University
Molly Mercer, Arizona State University
Jane Thayer, Emory University
ABSTRACT. This paper reports the results of an experiment that examines how analyst forecast accuracy (i.e., how close an analyst’s forecast is to realized earnings) and forecast boldness (i.e. how far the analyst’s forecast is from the consensus forecast) affect investors’ beliefs about the analyst. We hypothesize and find that forecast boldness moderates the effect of forecast accuracy on investors’ perceptions of analyst credibility. Investors view analysts who provide accurate forecasts as more credible than those who provide inaccurate forecasts, and the influence of accuracy on credibility is larger for analysts providing bold forecasts than for those providing non-bold forecasts. We also find that these effects are not symmetric. The credibility cost of being bold and inaccurate exceeds the credibility benefit of being bold and accurate.
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