Stocks with relatively high dispersion in analyst earnings forecasts are associated with significantly lower future returns. We show that the return predictability of dispersion is concentrated only in quarterly earnings announcement months. Within these months, return predictability is concentrated in the short window around earnings announcement dates. Subsequent tests show that bias in analysts’ earnings expectations explains the relation between dispersion and returns and that return predictability is significant even in recent years. Overall, our findings are consistent with an explanation for the return predictability of dispersion based on errors in earnings expectations.

Stock return predictability, dispersion anomaly, earnings expectations, analyst forecast bias
Asset Pricing (jel G12), Information and Market Efficiency; Event Studies (jel G14), Financial Institutions and Services: General (jel G20)
Management Science
Department of Business Economics

Veenman, D, & Verwijmeren, P. (2021). Earnings expectations game and the dispersion anomaly. Management Science, Accepted. Retrieved from