In this study, we compare the relative efficiency of investors and sell-side analysts in incorporating various accounting information. Our results indicate that the equity value estimates inferred from the analysts’ earnings forecasts are more biase...
In this study, we compare the relative efficiency of investors and sell-side analysts in incorporating various accounting information. Our results indicate that the equity value estimates inferred from the analysts’ earnings forecasts are more biased than the stock prices in interpreting stock price momentum, accruals, and past sales growth, while the former is less biased than the latter in interpreting the growth in long-term net operating assets. Combining the evidence, we conclude that sell-side analysts are generally less efficient than investors in incorporating certain accounting information. Thus, sell-side analysts need to mitigate their bias in interpreting certain accounting information to enhance market efficiency by providing investors with a good benchmark for their earnings expectation.