When Attention Is Away, Analysts Misplay: Distraction and Analyst Forecast Performance
68 Pages Posted: 3 Aug 2020
Date Written: June 1, 2020
We construct a measure of analyst-level distraction based on analysts’ exposure to exogenous attention-grabbing events affecting firms under coverage. We find that temporarily distracted analysts achieve lower forecast accuracy, revise forecasts less frequently, and publish less informative forecast revisions relative to non-distracted analysts. Further, at the firm level, analyst distraction carries real negative externalities by increasing information asymmetry for stocks that suffer from a larger extent of analyst distraction during a given quarter. Our findings thus augment our understanding of the determinants and effects of analyst effort allocation and broaden the literature on distraction and information spillover in financial markets.
Keywords: Limited Attention, Distraction, Analyst, Forecasts, Information Environment
JEL Classification: G10, G11, G14, G41
Suggested Citation: Suggested Citation