Analysts’ forecasts and uncertainty about firm value

Document Type


Publication Date



Accounting and Finance

Publication Title

Review of Accounting and Finance


Purpose: The purpose of this study is to use implied volatilities from exchange traded options to examine the interaction between analysts’ forecast revisions and the market’s perception of uncertainty about firm value. Design/methodology/approach: The authors examine how characteristics of individual forecast revisions, e.g. news and changes in dispersion of forecasts, affect changes in implied volatilities, whether analysts use the observable changes in implied volatilities to inform their forecast revisions and whether changes in dispersion of forecasts are correlated with changes in implied volatilities. Findings: The authors find that good (bad) news forecast revisions reduce (increase) investors’ perception of uncertainty about firm value, analysts do not appear to use changes in implied volatilities to shade their forecast revisions to good/bad news and dispersion of forecasts are a reasonable proxy for uncertainty about firm value as indicated by their correlation with implied volatilities. Originality/value: Recent research on analysts’ forecast revisions and management forecasts has focused on risk perception rather than value. This paper extends this work with a risk metric based on market transactions in both a short and long window analysis, as well as univariate and multivariate analysis.

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