The Role of Rogue Analysts in Determining Street Earnings

Internal seminar for researchers

Paper Abstract: We investigate the role of “rogue analysts” (i.e., analysts excluded from the consensus forecast) in defining street earnings. The existence and activities of analysts who disagree with the majority group about the correct earnings definition for valuing the firm can influence how consensus analysts forecast street earnings. Determinants tests suggest that the exclusion of an analyst from the current consensus forecast (current rogue status) is positively associated with (1) past rogue status, (2) all-star analyst status, and (3) the analysts’ deviation from the mean of all analysts’ forecasts during that firm-quarter. We also find that the proportion of analysts excluded from the consensus group is associated with consensus analysts’ subsequent forecast dispersion, revisions, and accuracy, suggesting that rogue forecasts have important implications for consensus analysts’ expectations about future firm performance. In addition, we find that the presence and changes in the mix of rogue analysts lead to smaller market reactions to earnings, highlighting the importance of better understanding how changes in the composition of the analyst consensus group influences the informativeness of street earnings.