Is It Heuristic Bias or Interest Relation that Leads to Optimistic Earnings Forecast of Securities Analysts?

Abstract

Abstract:

Based on an analysis of optimistic earnings forecast made by securities analysts in China, this paper reaches two conclusions. (1) Driven by heuristic bias, underwriter analysts tend to issue positive forecast reports and give higher earnings forecasts than non-underwriter analysts do and the stronger bias analysts have, the more different EPS forecast they tend to give in comparison with actual EPS. (2) Heuristic bias and interest relation are usually independent of each other in leading analysts to make optimistic earnings forecasts, but they may complement each other and mutually affect analysts' forecasts when listed companies with great financing have significant economic relationship with security companies, which would arrange non-star analysts to follow such listed companies.

Key words: analysts' forecasts, optimistic tendency, heuristic bias, interest relation

Zhou Donghua, Zhao Yujie. Is It Heuristic Bias or Interest Relation that Leads to Optimistic Earnings Forecast of Securities Analysts?[J]. , 2016, 28(1): 205-218.

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