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Aalto University School of Business Master's Theses are now in the Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Accounting | Accounting | 2013
Thesis number: 13146
Analyst optimism before and after the financial crisis of 2008
Author: Mörä, Mikko
Title: Analyst optimism before and after the financial crisis of 2008
Year: 2013  Language: eng
Department: Department of Accounting
Academic subject: Accounting
Index terms: laskentatoimi; accounting; tulos; return; ennusteet; forecasts; talousnäkymät; economic outlook; talouskriisi; economic crisis; psykologia; psychology
Pages: 73
Key terms: analysts' forecasts; bias; financial crisis; optimism
This thesis examines whether the documented analyst optimism has decreased after the financial crisis of 2008. Prior research reports overestimation bias on average in analysts' earnings forecasts. After the financial crisis, the U.S. financial industry has undergone changes that could affect analysts' incentives to bias their earnings forecasts. Furthermore, recent studies propose that there is a demand for more conservative sell-side analysis, which could be exaggerated after the crisis.

First, I examine the proportion of optimistic earnings forecasts of all forecasts before the financial crisis and after the crisis. Second, I conduct a regression analysis to capture the effect of the crisis to forecast errors, separate from other possible reasons. The data covers all U.S. companies with available earnings forecast data from the first quarter of 2004 to the last quarter of 2011, excluding the quarters during the financial crisis.

The sample is pessimistic on average. 39% of earnings forecasts were optimistic during the time span, excluding the quarters during the crisis. However, this study finds evidence that the financial crisis has contributed to further decrease in analysts' optimism in earnings forecasts. The proportion of optimistic forecasts is smaller after the crisis than before the crisis. Furthermore, the regression tests show that analysts are less optimistic after the crisis, independently from other possible reasons.

The findings thus suggest that analysts are generally less optimistic after the financial crisis. Moreover, forecast errors are larger than before the crisis. However, this study does not examine the reasons behind the decrease in optimism.
Master's theses are stored at Learning Centre in Otaniemi.