Expertise and Incorporation of Public Information
Speaker
Abstract
This study decomposes public information into market-level news, industry-level news and firm-specific news. The results show that analysts only underreact to firm-specific news, whereas managers underreact more to industry-level news than to firm-specific news. We further find that the degree of difficulty in gaining expertise affects the extent of underreaction. More specifically, analysts underreact more to firm-specific news when they follow more firms or face more uncertain firm information. Managers underreact less to industry-level news when they are leaders in that industry. Next, we study the information interaction process between analysts and managers and find that analysts incorporate more firm-specific news into their earnings forecasts after management guidance. Finally, we find that investors are more responsive to new information contained in management forecast news than to prior information. |
Contact information: |
Paolo Perego |