Stephen J. Ciccone

Does Analyst Optimism About Future Earnings Distort Stock Prices

Monthly returns to firms with optimistic expectations are 1.5% lower versus firms with pessimistic expectations, while annual buy-and-hold returns to firms with optimistic expectations are 20% lower. The optimistic component of stock prices lingers months after the optimism is revealed to the market. It also exists separately from the component related to analyst forecast dispersion. The possibility that forecast dispersion is related to transitory versus permanent earnings is proposed.

Investor Optimism, False Hopes and the January Effect

This paper proposes that the January Effect is at least partly explained by a behavioral framework based on optimistic expectations. The turn-of-the-year is hypothesized to be a time of renewed optimism. Indeed, investor sentiment, as measured by the University of Michigans Index of Consumer Confidence, peaks in January. Thus, optimists are expected to bid up the stock prices of firms with higher levels of uncertainty in January. These firms will subsequently underperform as they disappoint investors during the remainder of the year. Despite the disappointment, the January pattern persists due to the “false hope syndrome” described in the psychology literature. Using forecast dispersion to proxy for uncertainty, the results are consistent with the optimism hypothesis. Similar reasoning may help explain other anomalies.

Analyst Earnings Forecast Trends in Pacific Rim Countries

This study analyzes trends in analyst forecast properties from 1987 through 1998 in the United States and seven Pacific Rim countries: Australia, New Zealand, Taiwan, Hong Kong, Japan, South Korea, and Thailand. Analyst forecast properties in the United States have become less dispersed, more accurate, and less optimistic during the sample period. Similar trends exist in Australia and New Zealand, but not in the other sample countries. In contrast, the forecast property trends of most Asian countries are the exact opposite. For example, in Japan and Korea, forecast dispersion, forecast error, and optimism all significantly increase over the sample period. The results suggest that Asian firms do not play the U.S.‐style earnings game in which managers guide analysts toward a certain target number and then report earnings that beat the target.

Forecast dispersion and error versus size, book-to-market ratio and momentum: A comparison of anomalies from 1992 to 2001

Anomalies based on forecast properties (dispersion and error), size, book-to-market ratio and momentum are evaluated during the period 1992–2001 for a sample of US stocks using an annual buy-and-hold strategy. The forecast property, book-to-market and momentum anomalies all clearly persist during the sample period, while the size anomaly disappears. Although the book-to-market anomaly is the most powerful in magnitude, the forecast property anomalies are the most consistent in year-by-year performance. Combining the forecast property anomalies with either the momentum or book-to-market anomalies results in spectacular return performance. Overall, investors should consider taking advantage of the forecast property anomalies when selecting their stock holdings.

Voluntary Environmental Regulation and Firm Performance: The Chicago Climate Exchange

This article examines stock return and financial performance of firms that voluntarily participated in the Chicago Climate Exchange’s emissions-reduction program. Findings reveal that the stock price of firms joining the program increased by a small, statistically significant amount during the announcement period. Stocks overperformed by about 8% during the first year after the announcement. Financial performance of participating firms also improved compared to a matched sample of non-participating firms. Results support the hypothesis that sustainable business practices provide quantifiable benefits to participating corporations and do no harm to the financial status of the firm, while potentially improving the environment.