DO Analysts' Earnings Forecasts Incorporate Infonnation

This research examines whether analysts ’ earnings forecasts incorporate information in price changes. Even if the forecasts do not explicitly depend upon price changes, there should nevertheless be a positive association between analysts ’ forecast revisions and prior price changes. Moreover, if analysts incorporate only their private information in formulating a forecast and ignore price changes, then the likelihood that their estimate is less than (greater than) the realization increases following price increases (decreases). Empirical results are consistent with these conjectures and indicate that analysts ’ forecasts do not fully reflect the information in prior price changes. 1