Abstract
This paper provides a closer look at the expectation formation process of individual
analyst. Using a detailed analyst earnings forecasts dataset, we document the
existence of stickiness and confirmatory bias in individual analyst expectations.
When the latest signal about firm fundamentals is inconsistent with prior belief,
analysts are subject to confirmation bias, and tend to be stickier to their previous
earnings forecasts. Confirmation bias is more serve in the case of positive priors.
Besides, we find significant economical evidences in the stock market. Profitability
anomalies are stronger for firms which are followed by analysts with serious
stickiness and confirmatory bias in expectations.
JEL classification numbers: G10, G14, G17.
Keywords: Stickiness, Confirmatory bias, Expectation, Analysts forecast.
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