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Limited Attention, Analyst Forecasts, and Price Discovery

Advances in Accounting Behavioral Research

ISBN: 978-1-80071-013-9, eISBN: 978-1-80071-012-2

Publication date: 20 January 2021

Abstract

We highlight two mechanisms of limited attention for expert information intermediaries, i.e., analysts, and the effects of such limited attention on the market price discovery process. We approach analysts' limited attention from the perspective of day-to-day arrival of information and processing of tasks. We examine the attention-limiting role of competing tasks (number of earnings announcements and forecasts for portfolio firms) and distracting events (number of earnings announcements for non-portfolio firms) in analysts' forecast accuracy and the effects of such, on the subsequent price discovery process. Our results show that competing tasks worsen analysts' forecast accuracy, and competing task induced limited attention delays the market price adjustment process. On the other hand, distracting events can improve analysts' forecast accuracy and accelerate market price adjustments when such events relate to analysts' portfolio firms through industry memberships.

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Acknowledgements

Acknowledgement

We acknowledge anonymous reviewer comments from Advances in Accounting Behavioral Research. We further acknowledge suggestions from the participants, reviewers, and discussants in the following conferences: American Accounting Association Annual Meeting 2016, Managerial and Organizational Cognition Section of Academy of Management Annual Meeting 2016, and SASE Research Network Annual Meeting 2016. At various stages of the paper, we benefited from theoretical and empirical suggestions from Ayan Bhattacharya, Cargri Onuk, Diane Burton, Murillo Campello, Robert Bloomfield, and seminar participants at the University of Houston–Clear Lake, Cornell Institute for the Social Sciences, and Johnson Graduate School of Management.

Citation

Hasan, R. and Shahid, A. (2021), "Limited Attention, Analyst Forecasts, and Price Discovery", Karim, K.E., Fogarty, T., Rutledge, R., Pinsker, R., Hasseldine, J., Bailey, C. and Pitre, T. (Ed.) Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 24), Emerald Publishing Limited, Leeds, pp. 51-86. https://doi.org/10.1108/S1475-148820200000024003

Publisher

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Emerald Publishing Limited