Analysts’ Earnings Forecasts and Institutional Investors’ Preferences: An Empirical Study on Forecast Accuracy and Boldness

This paper aims to investigate the effect of financial analysts’ earnings forecasts on the institutional trading. In specific, we address three issues regarding the effect of financial analysts’ earnings forecast on the institutional investing behavior: (1) Do institutional investors prefer firms with higher accuracy on earnings forecast? (2) Do institutional investors prefer analysts with higher accuracy on earnings forecast? (3) Do institutional investors prefer analysts with bold attitude toward earnings forecast? Firstly, our result shows that firms with higher earnings forecast accuracy tend to attract more institutional investors’ attention and thus higher institutional holdings. Secondly, we also find that institutional investors prefer analysts with higher accuracy in their earnings forecast. That means institutional investors tend to follow more closely and pay more attention to those analysts whose earnings forecasts are more accurate. Finally, our result indicates that institutional investors in general are indifferent to analyst’s boldness toward earnings forecast. On the contrary, institutional investors seem to prefer analysts with accurate but close-to-consensus earnings forecast.

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