Delayed Security Price Adjustments to Analysts' Forecasts of Annual Earnings
Source: Elgers, Lo & Pfeiffer (2001) · The Accounting Review · DOI: 10.2308/accr.2001.76.4.613
TL;DR
Prices weight analysts' early-in-the-year earnings forecasts less than the historical forecast-realization relation justifies — i.e., the market underreacts to forecasts. Long the top decile and short the bottom decile of cross-sectional analyst forecasts (scaled) generates significant hedge returns as prices later catch up to the forecast information.
What anomaly it documents
Predictor: scaled early-year analyst earnings forecasts (relative to price).
Direction: positive — high forecasted-earnings firms (underweighted by the market) outperform.
Shape: monotone hedge spread; drift as prices catch up to forecasts.
OSAP predictor: sfe.
How to construct it
Sorting variable: consensus analyst earnings forecast scaled by price, early in the year.
Universe: firms with analyst coverage.
Portfolio formation: decile sorts on the scaled forecast.
Long / short: long top decile, short bottom decile.
Underreaction: prices impound forecast information sluggishly.
Anchoring: investors anchor on stale earnings rather than forward estimates.
Limitations and risks
Coverage requirement: followed firms only.
Forecast quality: depends on analyst-forecast accuracy.
Overlap: related to revisions and PEAD signals.
Key references
Elgers, P., Lo, M. & Pfeiffer, R. (2001) — Delayed Security Price Adjustments to Financial Analysts' Forecasts of Annual Earnings — TAR — DOI: 10.2308/accr.2001.76.4.613
Provenance: generated from the paper's abstract and metadata, not full text; sample periods and replication notes are indicative — verify against the source.
