[This paper compares the information investors have about a firm's future earnings, as reflected in its stock price, to that of the firm's management, as reflected in its management earnings forecast. Stock returns in the preforecast and forecast announcement period are positively associated with management earnings forecast errors, indicating that stock prices contain information beyond that reflected in management forecasts. This phenomenon can occur if management does not issue its true forecast or if investors have information about earnings that management does not have. The first hypothesis, that management forecasts do not fully reflect management's information, implies that forecasts will be biased in a directional or nondirectional manner. This study conducts tests for directional bias and develops and conducts a test for nondirectional bias, using a sample of management forecasts occurring in years 1979-1983. The hypothesis that management forecasts are biased is only rejected for forecasts made in 1982. Given the magnitude of economic changes occurring in 1982, post-forecast information may well have been negative, causing the average forecast error in 1982 to differ from zero. In the other years studied, the hypothesis that management forecasts are biased is not rejected. The data, thus, suggest that stock prices reflect information beyond that in management earnings forecasts because investors access some information that managers do not.]

[This article analyzes the volume of trade in a multiperiod noisy rational expectations model. When traders receive private signals at the first trading date and are allowed a second round of trade, two types of equilibria exist. In the first, traders do not learn about the average private signal from the second round of trade, and all trade takes place at the first date. In the second, traders do learn from the second round, and trade thus takes place at both the first and second dates. The article characterizes volume when a public signal is disclosed at the second date.]

This paper compares the information investors have about a firm's future earnings, as reflected in its stock price, to that of the firm's management, as reflected in its management earnings forecast. Stock returns in the preforecast and forecast announcement period are positively associated with management earnings forecast errors, indicating that stock prices contain information beyond that reflected in management forecasts. This phenomenon can occur if management does not issue its true forecast or if investors have information about earnings that management does not have. The first hypothesis, that management forecasts do not fully reflect management's information, implies that forecasts will be biased in a directional or nondirectional manner. This study conducts tests for directional bias and develops and conducts a test for nondirectional bias, using a sample of management forecasts occurring in years 1979-1983. The hypothesis that management forecasts are biased is only rejected for forecasts made in 1982. Given the magnitude of economic changes occurring in 1982, post-forecast information may well have been negative, causing the average forecast error in 1982 to differ from zero. In the other years studied, the hypothesis that management forecasts are biased is not rejected. The data, thus, suggest that stock prices reflect information beyond that in management earnings forecasts because investors access some information that managers do not.

This article analyzes the volume of trade in a multiperiod noisy rational expectations model. When traders receive private signals at the first trading date and are allowed a second round of trade, two type of equilibria exist. In the first, traders do not learn about the average private signal from the second round of trade, and all trade takes place at the first date. In the second, traders do learn from the second round, and trade thus takes places at both the first and second dates. The article characterizes volume when a public signal is disclosed at the second date.