Please use this identifier to cite or link to this item:
|Title:||Forecasting the Forecasters: A Closer Look at Analyst Optimism Bias in Earnings Forecasts|
|Abstract:||The capital asset pricing model necessitates a security market line of positive slope, though this slope is often negative in practice – low beta stocks historically outperform high beta stocks. I posit that analysts exhibit greater optimism bias on the earnings forecasts of higher beta stocks. These stocks thus frequently experience negative earnings surprises, which contributes to lower returns. I find that the effect of beta on optimism bias can be explained away for low to normal beta stocks, but remains significant and robust for high beta stocks. I also demonstrate a simple trading strategy, informed by my findings, that predicts when earnings targets are too optimistic and shorts those stocks before they announce.|
|Type of Material:||Princeton University Senior Theses|
|Appears in Collections:||Economics, 1927-2016|
Files in This Item:
|Economics_Senior_Thesis_Submission_Click_Here_To_Submit_jcbogle_attempt_2016-04-13-06-56-12_bogle_john.pdf||1.52 MB||Adobe PDF||Request a copy|
Items in Dataspace are protected by copyright, with all rights reserved, unless otherwise indicated.