Running head: ANALYSTS VIEWS AND REVISIONS CONSISTENCY 1

Analysts’ Stock Views and Revision Actions

Tao Li *

State University of New York at New Paltz

Author Note
*
Corresponding author.

Address: School of Business, SUNY New Paltz, 1 Hawk Dr, New Paltz, NY USA 12561.

Email: lit@newpaltz.edu

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 2

Abstract

This study analyzes the consistency between analysts’ stock views and their revisions of earnings

forecasts, price targets and recommendations. A hidden Markov model (HMM) is employed to

extract analysts’ views. The results show that consistent revisions (i.e., upgrades accompanied by

favorable views and downgrades accompanied by unfavorable views) more effectively trigger

the stock price reactions than inconsistent revisions. The rigidity of the stock views (i.e., views

are unlikely to change) negatively impacts the stock price reactions. The study highlights the

importance of inferring analysts’ implicit stock views, as it influences the effectiveness of their

stock research outputs.

Keywords: Earnings Forecasts Revisions, Stock Recommendations Revisions, Price

Target Revisions; Stock Views; Hidden Markov Model; Market Reactions

JEL classification: C13, M41, G14, G20

Highlights:

• Hidden Markov model is performed to extract analysts’ implicit views based on

their joint revisions from earnings forecasts, price targets and recommendations.

• Revisions consistent with views trigger stronger market reactions. The rigidity of

views results in lower revision effectiveness.

• The stock views and the overall revision-view consistency are useful in predicting

the stock price reactions when the directions of revisions are conflicting.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 3

Analysts’ Stock Views and Revision Actions

1. Introduction

Financial analysts provide three most common research outputs: earnings forecasts, price

target estimates and stock recommendations to facilitate the information transmission in the

financial market. These outputs help investors make informed investment decisions. Existing

literature generally focused on the revisions of these outputs (Clement, Hales, & Xue, 2011;

Feldman, Livnat, & Zhang, 2012; Francis & Soffer, 1997; Gleason & Lee, 2003; Li, Ramesh,

Shen, & Wu, 2015) as they provide more information than the pure level (Barber, Lehavy, &

Trueman, 2010; Jegadeesh, Kim, Krische, & Lee, 2004). It is not uncommon to see analysts

generating conflicting revisions, e.g. upgrade recommendations while downgrade earnings

forecasts. Existing findings and conclusions regarding the inconsistent revisions are mixed.

Brown and Huang (2013) found inconsistent recommendation-forecasts pairs indicate less

informativeness of recommendations and lower quality of earnings forecasts. Malmendier and

Shanthikumar (2014) attributed the inconsistent revisions to analysts’ strategic distortion by

speaking in “two tongues” when they face conflicting of interests. On the other hand, Iselin,

Park, and Van Buskirk (2020) found that the seemingly revision inconsistency can be driven by

accounting and economic factors and does not necessarily reflect low-quality outputs.

This study re-examines the revision consistency by focusing on the relationship between

analysts’ explicit revisions and their implicit stock views. The study considers three fundamental

states that represent analysts’ views: “Favorable”, “Neutral” and “Unfavorable”. Favorable

views are associated with higher chances of seeing more upgrades than downgrades; unfavorable

views are associated with the opposite situation; and neutral views are deemed as having an

equal chance of issuing both upgrades and downgrades. Such views cannot directly be observed

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 4

by investors; however, investor can use the observable revisions and stock performance to infer

the unobservable views probabilistically. This analytical process can be best modeled by the

Hidden Markov Model (HMM) framework, which analysts’ stock views shift among different

hidden states according to a Markov process and the distribution of analysts’ revision actions are

dependent on the view states. In HMM, each stock 𝑖 in each period 𝑡 is characterized by a

transition matrix 𝑷𝒊,𝒕 describing the probability that analysts retain the current view states or shift

to another view and an emission matrix 𝑸𝒊,𝒕 illustrating the probability that analysts issue

revisions conditional on the view.

The study applies the HHM framework on the daily sample of US stocks during the

period of 2004-2016. Investors observe analysts’ revisions from their earnings forecasts, price

target, and recommendation. The revision takes one of three possible directions: Upgrade,

Downgrade and No-Revision. The analysis assumes stock-specific and time-invariant emission

matrix 𝑷𝒊,𝒕 and stock-specific and time-varying transition matrix 𝑸𝒊 in the HMM setting. The

time-varying transition probabilities are determined by the most recent stock price movements

that capture the dynamics of view shifting.

The empirical analysis examines how analysts’ views provide implications for the

effectiveness of the revisions. The effectiveness of the revision is proxied by the market reaction

to the revisions events, which is calculated by the buy-and-hold abnormal return (BHAR) in a [-

1, +1] trading-day window around the revision event. Upgrades under “Favorable” views and

downgrades under “Unfavorable” views are defined consistent revisions, and the opposite is

treated as inconsistent. “Neutral” view, which are difficult to identify the consistency, is

excluded in the analysis. Both an event analysis and a regression analysis are performed to assess

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 5

how extracted views and revision-view consistency provide implications for the revision

effectiveness.

This study contributes to the analyst literature in finance by assessing the effectiveness of

earnings forecasts, price targets and recommendations when some of these outputs are

contradicting. This is the first study to consider the consistency between the explicit revision

actions and implicit stock views. The results support that consistent revisions are more effective

as they trigger stronger market reactions. This study provides insights for a better understanding

on the formativeness of analysts’ outputs in a multivariate setting.

2. Hidden Markov Models Specification

The mechanism and process of extracting analysts’ stock views through the HMM

framework to is explained as follows. For each stock 𝑖 at date 𝑡, analysts’ stock view 𝑉𝑖,𝑡 takes on

one of three values: “Favorable” (𝑣 + ), “Neutral” (𝑣 0 ) or “Unfavorable” (𝑣 − ); investors observe

a set of revisions from earnings forecasts, price target and recommendations, 𝒚𝑖,𝑡 : =

𝐸𝑃𝑆 𝑃𝑇𝐺 𝑅𝐸𝐶

[𝑦𝑖,𝑡 , 𝑦𝑖,𝑡 , 𝑦𝑖,𝑡 ]; each revision takes on one of three possible outcomes: Upgrade (𝑟 + ), No-

Revision (𝑟 0 ) and Downgrade (𝑟 − ).

The initial state probability are 𝝅𝒊,𝟎 = (𝜋𝑖,0𝑣+ , 𝜋𝑖,0𝑣0 , 𝜋𝑖,0𝑣− ), where

𝜋𝑖,0𝑠 = Pr (𝑉𝑖,1 = 𝑠), for 𝑠 ∈ {𝑣 − , 𝑣 0 , 𝑣 + } (1)

View 𝑉𝑖,𝑡 follows a first-order Markov process with time-varying transition matrix 𝑷𝒊,𝒕 :

Pr (𝑉𝑖,𝑡 = 𝑣 − |𝑉𝑖,𝑡−1 = 𝑣 − ) Pr (𝑉𝑖,𝑡 = 𝑣 0 |𝑉𝑖,𝑡−1 = 𝑣 − ) Pr (𝑉𝑖,𝑡 = 𝑣 + |𝑉𝑖,𝑡−1 = 𝑣 − )

𝑷𝒊,𝒕 = [ Pr (𝑉𝑖,𝑡 = 𝑣 − |𝑉𝑖,𝑡−1 = 𝑣 0 ) Pr (𝑉𝑖,𝑡 = 𝑣 0 |𝑉𝑖,𝑡−1 = 𝑣 0 ) Pr (𝑉𝑖,𝑡 = 𝑣 + |𝑉𝑖,𝑡−1 = 𝑣 0 ) ] (2)
Pr (𝑉𝑖,𝑡 = 𝑣 − |𝑉𝑖,𝑡−1 = 𝑣 + ) Pr (𝑉𝑖,𝑡 = 𝑣 0 |𝑉𝑖,𝑡−1 = 𝑣 + ) Pr (𝑉𝑖,𝑡 = 𝑣 + |𝑉𝑖,𝑡−1 = 𝑣 + )

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 6

where Pr(𝑉𝑖,𝑡 = 𝑠 𝑘 |𝑉𝑖,𝑡−1 = 𝑠 𝑗 ), 𝑘, 𝑗 ∈ {𝑣 − , 𝑣 0 , 𝑣 + } is the conditional probability of views shifting

from state k to state j at date t. This conditional probability is considered to be time-varying and

influenced by a set of observable stock performance measures 𝒙𝒊,𝒕

Pr(𝑉𝑖,𝑡 = 𝑠 𝑘 |𝑉𝑖,𝑡−1 = 𝑠 𝑗 ) = Pr (𝑉𝑖,𝑡 = 𝑠 𝑘 |𝑉𝑖,𝑡−1 = 𝑠 𝑗 , 𝒙𝒊,𝒕 ) (3)

There are various model structures that can estimate the conditional probability in Eq(3).

This study adopts an ordered logit specification in the HMM procedure. The probability of

issuing a particular revision set 𝒚𝑖,𝑡 is dependent on the unobservable view state 𝑉𝑖,𝑡 . The

mapping from the view state to revisions is described by a time-invariant joint emission matrix

𝑸𝒊 in the HMM model specification.

Pr (𝑦𝑖𝑚 = 𝑟 − |𝑉𝑖 = 𝑣 − ) Pr (𝑦𝑖𝑚 = 𝑟 0 |𝑉𝑖 = 𝑣 − ) Pr (𝑦𝑖𝑚 = 𝑟 + |𝑉𝑖 = 𝑣 − )

𝑄𝑖𝑚 = [ Pr (𝑦𝑖𝑚 = 𝑟 − |𝑉𝑖 = 𝑣 0 ) Pr (𝑦𝑖𝑚 = 𝑟 0 |𝑉𝑖 = 𝑣 0 ) Pr (𝑦𝑖𝑚 = 𝑟 + |𝑉𝑖 = 𝑣 0 ) ] (4)
Pr (𝑦𝑖𝑚 = 𝑟 − |𝑉𝑖 = 𝑣 + ) Pr (𝑦𝑖𝑚 = 𝑟 0 |𝑉𝑖 = 𝑣 + ) Pr (𝑦𝑖𝑚 = 𝑟 + |𝑉𝑖 = 𝑣 + )
where 𝑚 ∈ {𝐸𝑃𝑆, 𝑃𝑇𝐺, 𝑅𝐸𝐶} is the indication of the revision type. The choice of time-varying

transition matrix and time-invariant emission matrix is to make the extracted state easy to

interpret as well as to avoid over-parameterization for the model specification.

The HHM parameters are estimated through the expectation-maximization (EM)

algorithm, where iterative steps are performed to maximize the expected joint log-likelihood of

the parameters given the observations and states (Baum & Petrie, 1966). The HHM assumes the

initial view 𝝅𝒊,𝟎 is stock-specific and dependent on 𝒙𝒊,𝒕 at 𝑡 = 1. The assignment of the meaning

on the extracted views is performed by information from 𝑸𝒊 . The state 𝑣 that has the largest

value of ∑𝑚[𝑃𝑟(𝑦𝑖𝑚 = 𝑟 + |𝑣) − 𝑃𝑟(𝑦𝑖𝑚 = 𝑟 − |𝑣)] is interpreted as “Favorable” and the state

with the lowest value is interpreted as “Unfavorable”, otherwise the view is “Neutral”.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 7

3. Data Sample, Key Variables and Empirical Design

The study collects analysts’ outputs from I/B/E/S database and stock prices and returns

from CRSP database. Revisions are identified by the change of consensus level of each output on

a daily basis. For earnings forecasts and target price estimate, if the current consensus level is

below (above) the consensus level in previous day, the revision direction is “Downgrade”

(“Upgrade”), otherwise the revision direction is “No-Revision”. For recommendation, I/B/E/S

uses a 5-level scale measure and “1” indicates “Strong Buy” while “5” indicates “Strong Sell”.

Therefore, current recommendation consensus below the previous consensus level is defined as

“Upgrade”. The study uses the outstanding individual unadjusted 1-year ahead annual EPS

forecasts within the past 365 days to construct the EPS consensus1, outstanding individual price

target estimates with a 12-month horizon to construct PTG consensus, and outstanding individual

recommendations to construct REC consensus. US stocks that have at least 20 upgrades and 20

downgrades, covered by at least two analysts for a minimum of 200 days in 2004-2016 included

in the analysis. In addition, each stock should have a percentage of revision event (i.e. having at

least one revision on date t) greater than15%, and never falls into “penny stock” category (price

less than $5). Based on these criteria, the data sample contains 1,571 stocks with 416,722 EPS

upgrades and 467,703 EPS downgrades, 228,823 PTG upgrades and 165,864 PTG downgrades

and 105,998 REC upgrades and 109.085 REC downgrades.

In the HMM specification, the covariates 𝒙𝒊,𝒕 which measure the most recent stock

performance are used to generate the time-varying transition matrix. The detailed definitions of

1
“Outstanding” is defined as the most recent updated forecasts, price target, or recommendation
issued by each brokerage house within the past 365 days.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 8

𝒙𝒊,𝒕 are provided in Appendix (A). In the empirical analysis, revision effectiveness is measured

by the three-day abnormal return (𝐵𝐻𝐴𝑅) around the revision event as follows:

𝑡+1 𝑡+1
𝐵𝐻𝐴𝑅𝑖,𝑡 = ∏ (1 + 𝑟𝑖,𝑡 ) − ∏ (1 + 𝑟𝑏,𝑡 ) (5)
𝑡−1 𝑡−1
where 𝑟𝑖,𝑡 is the daily return of stock 𝑖 on date 𝑡, and 𝑟𝑏,𝑡 is a benchmark daily return as

calculated by the predicted stock return in the Fama-French 3-factor model2. The unconditional

relationship between the 𝐵𝐻𝐴𝑅 and revision-view consistency is performed by an event analysis

across revision directions and revision consistency. A regression analysis of 𝐵𝐻𝐴𝑅 on the

revision-view consistency is performed for each sub-sample based on revision type (EPS, PTG,

REC) and revision direction (Upgrades, Downgrades) as follows.

𝐵𝐻𝐴𝑅𝑖,𝑡 = 𝛽1 𝑉𝑖𝑒𝑤𝐶𝑜𝑛𝑖,𝑡 + 𝛽2 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑𝑖,𝑡 + 𝛽3 𝑁𝑒𝑡𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛𝑖,𝑡 + ∑ 𝜸𝒛𝒊,𝒕 (6)

where key variable 𝑉𝑖𝑒𝑤𝐶𝑜𝑛 is a dummy indicator for the revision-view consistency;

𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 is the measurement for the stickiness of analyst’ view as calculated from the average

of the diagonal elements in the transition matrix 𝑷𝒊,𝒕 (Du, Huddart, Xue, & Zhang, 2020);

𝑁𝑒𝑡𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛 is the net sum of other consistent revisions, i.e., count of other consistent

revisions subtract count of other inconsistent revisions. 𝒛𝒊,𝒕 are control variables that also affect

the revision effectiveness3. In Eq(6), the sign of 𝐵𝐻𝐴𝑅 is reversed for downgrades, so a positive

value of 𝐵𝐻𝐴𝑅 indicates the revision is effective regardless of the revision direction. To assess

how extracted views and the overall revision-view consistency provide implications for the stock

2
A [-60, -5] trading-day window is used to estimate the Fama-French 3-factor model. Daily
Fama-French 3 factors are downloaded from online data library of Kenneth R. French Center.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 9

price reactions when the individual revisions have contradictory directions, the following

regression is performed.

𝐵𝐻𝐴𝑅𝑖,𝑡 = 𝛽1 𝑉𝑖𝑒𝑤𝐹𝑖,𝑡 + 𝛽2 𝑁𝑒𝑡𝐶𝑜𝑛𝑖,𝑡 + 𝛽3 𝑉𝑖𝑒𝑤𝐹𝑖,𝑡 × 𝑁𝑒𝑡𝐶𝑜𝑛𝑖,𝑡 + 𝛽4 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑𝑖,𝑡

(7)
+ 𝛽5 𝑉𝑖𝑒𝑤𝐹𝑖,𝑡 × 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑𝑖,𝑡 + ∑ 𝜸𝒛𝒊,𝒕
where 𝑉𝑖𝑒𝑤𝐹 is a dummy indicator for “Favorable View”; 𝑁𝑒𝑡𝐶𝑜𝑛 is the net count of

consistent revisions, which equals the count of consistent revisions minus the count of inconsistent

revisions for stock 𝑖 on date 𝑡. In this regression, the sign of 𝐵𝐻𝐴𝑅 is reversed for unfavorable

views. The detailed definitions of 𝑧𝑖,𝑡 in Eq(6) and Eq(7) are also provided in Appendix (A).

4. Analysis Results

Table 1 presents the emission matrix from the HHM results. At daily level, the most

common revisions across all the views are still “No-Revision”. Earnings forecasts and price

targets are much more frequently revised than recommendations. Figure 1 illustrates the

summary of stock distributions based on the estimated views. On average, the proportion of

“Unfavorable” views is about 23% while the proportion of “Favorable” views is around 25%. It

should be noted that the peak of the % Unfavorable views is identified in early 2009, which is

the late 2007-2009 global financial crisis period; and most of the sub-peaks of % unfavorable

views (e.g. Aug-2010, Aug-2011, Feb-2016, etc.) are all associated with a local bottom of the

S&P 500 index. These findings indicate that the analysts’ views as extracted by the HMM

framework do reflect the overall sentiment about the financial market.

Table 2 presents the event analysis on the stock market reactions to each type of revisions

conditional on the revision-view consistency and revision directions. Regardless of the revision-

view consistency, upgrades produce significant positive 𝐵𝐻𝐴𝑅 and downgrades generate

negative 𝐵𝐻𝐴𝑅. The last row in each panel of the table shows the difference in 𝐵𝐻𝐴𝑅 between

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 10

the consistent revisions and inconsistent revisions. Similar to the findings by Brown and Huang

(2013), consistency improves the revision effectiveness and inconsistency impairs the market

reactions for recommendations and earnings forecasts. However, this conclusion does not hold

for price target upgrades, where the upgrades issued with the “Unfavorable” views seem to

produce stronger market reactions than those issued with “Favorable” views.

Table 3 presents the results of the regressions analysis in Eq(6). Each column represents a

regression on the subset of the sample based on the revision type and revision direction. Stock

fixed-effects and year fixed-effects are controlled. The three key variables 𝑉𝑖𝑒𝑤𝐶𝑜𝑛, 𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛

and 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 provide implications for how analysts’ views contribute to the revision

effectiveness. The coefficients of 𝑉𝑖𝑒𝑤𝐶𝑜𝑛 show that view consistency has a positive

contribution to the revision effectiveness. 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 measures the level of stickiness that

analysts’ views remain the same in the next period. The negative coefficient estimates suggest

that investors interpret the private information associated with the revision with unchanged views

to be non-substantial, thus resulting in weaker market reactions. 𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛 describes the

consistency from other jointly issued revisions. As expected, the coefficients of 𝑂𝑡ℎ𝑒𝑟𝐶𝑜𝑛 are

also significantly positive across all revision types and directions. The coefficients for the control

variables also provide meaningful insights. 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 and 𝐶𝑎𝑝𝑠𝑧 are both negative across most

revisions, suggesting a decreased informativeness of the revisions when the efficiency of the

information diffusion is increasing. 𝐼𝑑𝑖𝑜𝑠𝑦𝑛𝑐𝑅𝑖𝑠𝑘 and 𝐵𝑒𝑡𝑎 are both statistically negative,

implying analysts’ revisions have less impact on risky stocks. The coefficients of 𝐴𝑙𝑝ℎ𝑎 are

positive for upgrades and negative for downgrades, which indicates that stocks with superior

performance tend to respond aggressively to positive news and passively to negative news. The

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 11

coefficients for 𝑉𝐼𝑋 also have reversed sign for upgrades and downgrades, suggesting that high

market uncertainty leads to less effective downgrades and more effective upgrades. It is also

reasonable, as high VIX is usually associated with negative sentiment and investors have a

higher anticipation for downgrades, thus making the corresponding market response to be

weaker (Malatesta & Thompson, 1985).

Table 4 presents the results of the regressions analysis in Eq(7). The result highlights the

importance of knowing the estimated view, as it helps investors predict the stock price movement

when facing contradicting revision signals. The key variable 𝑁𝑒𝑡𝐶𝑜𝑛 is positive, suggesting that

more consistent joint revisions increase the magnitude of the market reactions. The coefficient of

𝑉𝑖𝑒𝑤𝐹 × 𝑁𝑒𝑡𝐶𝑜𝑛 suggests that the impact of 𝑁𝑒𝑡𝐶𝑜𝑛 on 𝐵𝐻𝐴𝑅 is weaker under “Favorable”

views than under “Unfavorable” views, which is consistent with the well-known over-optimism

bias in analysts’ research outputs. 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 indicates that stagnant views cast weaker market

reactions to revision events and this impact is only significant for “Favorable” views. The

control variables exhibit similar pattern as in Eq(6), thus indicating the robustness of the

analysis. In summary, both Table 3 and Table 4 provide evidence that analysts’ stock views and

the revision-view consistency are key determinant for the market reactions to the revision events.

5. Conclusions and Implications

This study examines analysts’ stock views that influence the decision and effectiveness of

their revisions with earnings forecasts revision, price target and stock recommendations.

Focusing on the consistency between the explicit revision actions and implicit views, the

empirical results show that revisions consistent with the views are more effective than the

inconsistent revisions and the rigidity of the views impairs the effectiveness of the revision. This

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 12

paper is the first study to extract analysts’ views using their revisions in a multivariate setting and

adopts the HMM framework to perform the analysis. The research approach yields promising

results and interpretable findings. This study sheds light on a new direction in analyst research

focusing on what analysts think about the stocks as opposed to what analysts do in revisions.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 13

Tables

Table 1. Emission Matrix of Mapping Stock Views to Revisions

̅ (𝑺𝑬𝒑̅)
Earnings Forecasts (EPS) Revisions: 𝒑
View Downgrade No Revision Upgrade
Unfavorable 40.95% (0.65%) 40.47% (0.87%) 18.57% (0.36%)
Neutral 5.87% (0.30%) 88.76% (0.57%) 5.36% (0.27%)
Favorable 17.99% (0.42%) 50.23% (0.95%) 31.77% (0.64%)
̅ (𝑺𝑬𝒑̅)
Price Target (PTG) Revisions: 𝒑
View Downgrade No Revision Upgrade
Unfavorable 20.10% (0.48%) 72.37% (0.60%) 7.52% (0.25%)
Neutral 1.78% (0.14%) 95.68% (0.31%) 2.54% (0.17%)
Favorable 5.55% (0.23%) 71.26% (0.69%) 23.19% (0.56%)
Recommendation (REC) Revisions: 𝒑 ̅ (𝑺𝑬𝒑̅)
View Downgrade No Revision Upgrade
Unfavorable 7.48% (0.15%) 87.40% (0.25%) 5.12% (0.11%)
Neutral 1.81% (0.06%) 96.49% (0.12%) 1.70% (0.06%)
Favorable 5.09% (0.12%) 87.87% (0.26%) 7.04% (0.16%)

Note: This table presents the emission probability of receiving each type of revisions conditional

on the estimated stock views. The % number is the average emission probability across all 1,572

stocks in the sample; the % number in the parenthesis denotes the standard error of the mean

probability.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 14

Table 2. Market Reactions to Revision Events

Recommendation Revision BHAR (-1, +1) in %

Upgrade Downgrade
N MEAN (SE) N MEAN (SE)
Consistent 46,891 1.39 (0.02) *** 45,099 -1.59 (0.03) ***
Inconsistent 31,302 1.24 (0.04) *** 34,566 -0.76 (0.03) ***
Diff 0.15 (0.04) *** -0.82 (0.04) ***

Earnings Forecasts Revision BHAR (-1, +1) in %

Upgrade Downgrade
N MEAN (SE) N MEAN (SE)
Consistent 215,070 0.50 (0.01) *** 260,436 -0.46 (0.01) ***
Inconsistent 128,626 0.34 (0.01) *** 130,011 -0.18 (0.01) ***
Diff 0.17 (0.02) *** -0.28 (0.02) ***

Price Target Revision BHAR (-1, +1) in %

Upgrade Downgrade
N MEAN (SE) N MEAN (SE)
Consistent 153,693 0.62 (0.01) *** 114,606 -0.67 (0.02) ***
Inconsistent 45,503 0.77 (0.03) *** 34,474 -0.44 (0.03) ***
Diff -0.15 (0.03) *** -0.24 (0.04) ***

Note: */**/*** correspond to 10%, 5% and 1% significance levels.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 15

Table 3. The Regression of BHAR on Revision-View Consistency

Target Variable: EPS EPS PTG PTG REC REC

BHAR (%) Downgrade Upgrade Downgrade Upgrade Downgrade Upgrade
Est (SE) Est (SE) Est (SE) Est (SE) Est (SE) Est (SE)
𝑽𝒊𝒆𝒘𝑪𝒐𝒏 0.185*** 0.276*** 0.198*** 0.048 0.360*** 0.090*
(0.024) (0.026) (0.065) (0.047) (0.049) (0.049)
𝑽𝒊𝒆𝒘𝑹𝒊𝒈𝒊𝒅 -0.407*** -0.603*** -0.716*** -0.668*** -1.033*** -0.838***
(0.075) (0.076) (0.141) (0.117) (0.186) (0.185)
𝑶𝒕𝒉𝒆𝒓𝑪𝒐𝒏 0.299*** 0.244*** 0.473*** 0.218*** 0.176*** 0.082***
(0.011) (0.012) (0.017) (0.012) (0.019) (0.019)
𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 -0.013*** -0.009*** -0.003 -0.009*** 0.000 -0.036***
(0.002) (0.002) (0.004) (0.003) (0.006) (0.006)
𝐼𝑑𝑖𝑜𝑠𝑦𝑛𝑐𝑅𝑖𝑠𝑘 -0.481*** -0.880*** -1.691*** -1.420*** -0.195 0.267*
(0.060) (0.058) (0.114) (0.086) (0.151) (0.149)
𝐶𝑎𝑝𝑠𝑧 0.033 -0.315*** -0.176*** -0.341*** -0.551*** -0.417***
(0.021) (0.020) (0.039) (0.031) (0.052) (0.051)
𝑀𝑘𝑡𝑅𝑒𝑡 -0.063*** 0.029*** -0.106*** -0.026** -0.007 0.032**
(0.006) (0.007) (0.010) (0.012) (0.016) (0.016)
𝐴𝑙𝑝ℎ𝑎 -0.105*** 0.098*** -0.173*** 0.190*** -0.183*** 0.163***
(0.002) (0.002) (0.003) (0.003) (0.004) (0.004)
𝐵𝑒𝑡𝑎 -0.078*** -0.118*** -0.316*** -0.276*** -0.026 0.113***
(0.016) (0.016) (0.030) (0.024) (0.039) (0.039)
𝑉𝐼𝑋 -0.018*** 0.009*** -0.041*** 0.016*** -0.015*** 0.023***
(0.001) (0.001) (0.002) (0.003) (0.003) (0.003)
Stock Fixed-Effects Yes Yes Yes Yes Yes Yes
Year Fixed-Effects Yes Yes Yes Yes Yes Yes
Num. obs. 390,447 343,696 149,080 199,196 79,665 78,193
R2 0.023 0.026 0.053 0.054 0.081 0.066
Adj. R2 0.019 0.021 0.043 0.047 0.062 0.047

Note: The dependent variable is the percentage return measuring the BHAR in a [-1, +1] trading

day window. The sign of BHAR for downgrades are reversed, so a positive BHAR indicates the

revision is effective and a negative BHAR indicates the revision is not effective. */**/***

correspond to 10%, 5% and 1% significance levels.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 16

Table 4. The Regression of BHAR on View and Overall Revision Consistency

Target Variable: BHAR (%) Spec (1) Spec (2)

Est (SE) Est (SE)
𝑁𝑒𝑡𝐶𝑜𝑛 0.525*** 0.514***
(0.006) (0.006)
𝑉𝑖𝑒𝑤𝐹 0.367*** 0.408***
(0.045) (0.045)
𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 -0.015 -0.023
(0.061) (0.062)
𝑉𝑖𝑒𝑤𝐹 × 𝑁𝑒𝑡𝐶𝑜𝑛 -0.083*** -0.067***
(0.009) (0.009)
𝑉𝑖𝑒𝑤𝐹 × 𝑉𝑖𝑒𝑤𝑅𝑖𝑔𝑖𝑑 -0.480*** -0.513***
(0.080) (0.080)
𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 -0.008***
(0.002)
𝐼𝑑𝑖𝑜𝑠𝑦𝑛𝑐𝑅𝑖𝑠𝑘 -0.309***
(0.039)
𝐶𝑎𝑝𝑠𝑧 -0.093***
(0.014)
𝑀𝑘𝑡𝑅𝑒𝑡 -0.033***
(0.004)
𝐴𝑙𝑝ℎ𝑎 -0.018***
(0.001)
𝐵𝑒𝑡𝑎 -0.028***
(0.011)
𝑉𝐼𝑋 -0.006***
(0.001)
Stock Fixed-Effects Yes Yes
Year Fixed-Effects Yes Yes
Num. obs. 830964 830964
R2 0.020 0.020
Adj. R2 0.018 0.018

Note: The dependent variable is the percentage return measuring the BHAR in a [-1, +1] trading

day window. The sign of BHAR of revision events with unfavorable views are reversed,

assuming favorable views are associated with positive BHAR and unfavorable views are

associated with negative BHAR. */**/*** correspond to 10%, 5% and 1% significance levels.

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 17

Figures

Figure 1. Distribution of Stocks by Stock Views

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ANALYSTS VIEWS AND REVISIONS CONSISTENCY 18

Appendix (A)

Variable Definitions

𝒙𝒊,𝒕 in 𝒛𝒊,𝒕 in Variable Definition

Eq(3) Eq(6)
Yes 𝐴𝐵𝑅𝐸𝑇5 The average of daily stock abnormal return over the industry
and size-decile matched portfolio in the past 5 trading days.
Yes 𝐴𝐵𝑅𝐸𝑇10 The average daily stock abnormal return over the industry
and size-decile matched portfolio in the past 10 trading days.
Yes 𝐴𝐵𝑅𝐸𝑇30 The average daily stock abnormal return over the industry
and size-decile matched portfolio in the past 30 trading days.
Yes 𝐴𝐵𝑅𝐸𝑇60 The average daily stock abnormal return over the industry
and size-decile matched portfolio in the past 60 trading days.
Yes 𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 The standard deviation of the stock daily return as calculated
based on the past [-60, -5] trading-day window.
Yes Yes 𝐴𝑙𝑝ℎ𝑎 Jensen Alpha, calculated as the intercept term in the CAPM
model based on the past [-60, -5] trading-day window.
Yes Yes 𝐵𝑒𝑡𝑎 Stock Beta, calculated as the slope term in the CAPM model
based on the past [-60, -5] trading-day window.
Yes Yes 𝑉𝐼𝑋 The current VIX level

Yes 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 The number of analysts who are currently following the
stock.
Yes 𝐼𝑑𝑖𝑜𝑠𝑦𝑛𝑐𝑅𝑖𝑠𝑘 The idiosyncratic risk of the stock, which is calculated the 1-
𝑅 2 of the CAPM model based on the past [-60, -5] trading-
day window.
Yes 𝐶𝑎𝑝𝑠𝑧 The market capital value of the stock, which is calculated as
the stock price multiplies the number of shares of
outstanding.
Yes 𝑀𝑘𝑡𝑅𝑒𝑡 The market portfolio return, which is the value-weighted
market return obtained from the CRSP database

Notes: In the calculation of ABRET, the industry is defined by Fama-French 48-Industry

classification.

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