Dispersion of Analysts' Forecasts, Precision of Earnings, and Trading Volume Reaction  

Oleh:

Ronen, Joshua ; Bildersee, John ; Radhkrishan, Suresh

Jenis: Article from Bulletin/Magazine
Dalam koleksi: INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS vol. 5 no. 2 (1996), page 99-112.
Topik: earnings; dispersion; analysts' forecasts; precision; earnings

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: II7 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

We examine the relation between trading volume and belief dispersion and earnings precision around earnings announcement dates. No study to date has included both information factors (i. e., belief dispersion and earnings precision) simultaneously to explain trading volume behavior. Theoretical studies such as Dontoh and Ronen (1993) and Kim and Verrechia (1991) show that trading volume depends on : (a) the contemporaneous dispersion of beliefs, (b) the prior dispersion of beliefs, and (c) the precision of earnings. We model the volume response coefficient on unexpected earnings as a function of earnings precision and the volume response coefficient on contemporaneous dispersion as a function of relative change in dispersion. Contemporaneous (prior) belief dispersion is measured using the coefficient of variation of analysts' forecasts for the next fiscal year during (one month prior to) the earnings announcement month. Earnings precision is measured by : (a) the inverse of the coefficient of variation of the analysts' forecast errors for five years, and (b) earnings response coefficient to abnormal earnings. We find that trading volume is : (a) positively associated with earnings precision and contemporaneous dispersion of beliefs, and (b) negatively associated with the relative change in dispersion. The results are robust to changes in the measures of trading volume ; i. e., similar results are obtained when trading volume levels and abnormal trading volume measures are used. The results are also robust to the number of analysts' forecasts that are available for the firms.

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