Analyst underreaction in the United Kingdom

Constantinou, C.P., Forbes, W. and Skerratt, L. (2003) Analyst underreaction in the United Kingdom. Financial Management, 32, pp. 93-106.

Full text not currently available from Enlighten.


We revisit the debate on the interpretation given to prior-year earnings changes in predicting analysts' future forecast errors. We advance a new specification of this relation that distinguishes between earnings reversion and momentum. For a large UK dataset for the years 1990-1996, we find substantial underreaction, particularly in situations of earnings momentum. We find that underreaction is further increased for cases of downward earnings momentum when the analyst's merchant bank acts as a broker to the company. We interpret this as a reporting bias caused by an analyst's response to bad news being compromised.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Forbes, Dr William
Authors: Constantinou, C.P., Forbes, W., and Skerratt, L.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Financial Management

University Staff: Request a correction | Enlighten Editors: Update this record