Earnings Forecasts And Institutional Demand For Common Stock

Given that institutional investors now control over 50% of the equity funds in the market, it is important to understand the factors that influence their investment choices. A factor widely believed to influence institutional investment is analysts forecasts of future earnings performance. This paper investigates the ownership vs. earnings relationship using a number of different model specifications. The findings indicate that contrary to the generally accepted wisdom, there is little empirical evidence indicating that institutional investors are influenced by analysts forecasts. Even within the sub-sample of those firms where the analysts are most in agreement, the relationship between the change in institutional ownership and analysts forecasts is insignificant. These results persisted across the six year time period investigated