Financial Decisions - Document Index

Conflict in Whispers and Analyst Forecasts:

Which One Should Be Your Guide?

Janis K. Zaima and Maretno Agus Harjoto^*

San Jose State University

Abstract

This study examines the market reaction to conflicts that arise when analyst forecast errors are positive (negative) and whisper forecast errors are negative (positive). Results from a subsample, which represents firms with actual EPS that meet/beat the analyst forecast but not whisper, and regression analysis provide evidence that the market reaction to whispers is stronger than the market reaction to analysts. Compared to a portfolio that relies solely on either the analyst forecasts or whispers, a portfolio strategy that uses both information, as well as using whispers when the two conflict, results in higher abnormal returns.