THESIS
2012
viii, 65 p. ; 30 cm
Abstract
Essay I: Management Earnings Guidance, Earnings Momentum and Price Momentum
This paper studies the impact of management earnings guidance on momentums. I find
that management earnings guidance can reduce EC earnings momentum (where EC is
seasonal earnings changes) and price momentum, but cannot reduce ES earnings momentum
(where ES is actual earnings minus analyst forecast consensus). Further evidence suggests that
information content rather than the presence of management earnings guidance affects its
impact on momentums. Specifically, I find that management earnings guidance can increase
rather than decrease earrings momentum when the bias in the guidance is high. Finally, I
show that investors are responsive to the prior information contained in management earnings
guidanc...[
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Essay I: Management Earnings Guidance, Earnings Momentum and Price Momentum
This paper studies the impact of management earnings guidance on momentums. I find
that management earnings guidance can reduce EC earnings momentum (where EC is
seasonal earnings changes) and price momentum, but cannot reduce ES earnings momentum
(where ES is actual earnings minus analyst forecast consensus). Further evidence suggests that
information content rather than the presence of management earnings guidance affects its
impact on momentums. Specifically, I find that management earnings guidance can increase
rather than decrease earrings momentum when the bias in the guidance is high. Finally, I
show that investors are responsive to the prior information contained in management earnings
guidance. The evidence in this paper supports information diffusion theory in explaining
earnings and price momentum and suggests that informative disclosure can accelerate
information diffusion process.
Essay II: How Do Heterogeneous Priors Generate Disagreement
This study uses an innovative setting to study how heterogeneous beliefs affect
information incorporation. I pair analysts who have identical earnings forecasts for quarter
t+1 before earnings announcements of quarter t, to control their prior beliefs about earnings of
quarter t+1. I define the order of paired analysts’ latest forecasts for quarter t as prior order
and the order of their earliest forecasts for quarter t+1 after earnings announcements of
quarter t as posterior order. I find that posterior order is more likely to be consistent with
rather than flip over prior order. This finding cannot be explained by existing literature in
finance, such as Kandel and Pearson (1995) and Hong and Stein (2007). One possible
explanation for my finding is that analysts’ information processing is biased by their prior
beliefs.
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