The role of anchoring bias in the equity market: Evidence from analysts' earnings forecasts and stock returns

Ling Cen, Gilles Hilary, K. C.John Wei

Research output: Journal article publicationJournal articleAcademic researchpeer-review

74 Citations (Scopus)


We test the implications of anchoring bias associated with forecast earnings per share (FEPS) for forecast errors, earnings surprises, stock returns, and stock splits. We find that analysts make optimistic (pessimistic) forecasts when a firm's FEPS is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. These firms are also more likely to engage in stock splits. Finally, split firms experience more positive forecast revisions, more negative forecast errors, and more negative earnings surprises after stock splits.

Original languageEnglish
Pages (from-to)47-76
Number of pages30
JournalJournal of Financial and Quantitative Analysis
Issue number1
Publication statusPublished - 1 Feb 2013
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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