On The Relation Between Market And Analyst Forecast Inefficiencies

This paper examines the relation between market and analyst forecast inefficiencies. Using a common set of public information variables, Authors find 1) both abnormal stock returns and analyst earnings forecast errors are predictable; 2) while future analyst forecast errors are positively correlated with the predictable component of abnormal returns, future abnormal returns are not significantly correlated with the predictable component of forecast errors; 3) in contemporaneous regressions of stock returns on analyst forecast errors, removing the predictable component of analyst forecast errors results in higher coefficient estimates and R2 values; but in the reverse regressions, removing the predictable component of stock returns does not generate a similar effect.