The impact of sentiment on the timeliness of analysts' information flows

I study how investor sentiment affects the speed in which analysts issue their earnings forecasts. Based on psychological phenomena, I find that deviations from a steady level of economy-wide sentiment are associated with more timely analysts' earnings forecasts. I also find that analysts' earnings forecasts are more timely for firms with higher sentiment. However, I find that analysts' earnings forecasts are more timely only during bust periods. This is consistent with representativeness bias during periods of downturns. When analysts' earnings forecasts are decomposed into upwards and downwards forecast revisions, I find there are differences in the timeliness of upward and downward forecast revisions during boom and bust periods. I then examine the impact the timeliness of analysts' earnings forecasts has on the cost of equity capital. I find that as the timeliness of analysts' forecasts increases, the cost of equity capital reduces. However, there appears to be a maximum point where the most timely analysts' forecasts increase the cost of equity capital. My research provides evidence on analysts' information production processes during periods of both normal and extreme economy-wide sentiment