Daily returns are used to investigate the effect of preferred stock rating change announcements on preferred and common stock prices. Announcements that are free of confounding events, ‘clean’ announcements, significantly affect preferred stock prices. However, the effect occurs after the day of announcement, mostly on event day +1. Conversely, there is no evidence ‘clean’ announcements affect common stock prices. Larger preferred stock abnormal returns are associated with announcements that are contaminated by confounding events, but the abnormal returns appear to be the result of the confounding events more than the rating change.

In this study I propose and test a model that predicts individual analyst forecasts of corporate earnings per share (EPS) using the change in the mean consensus forecast of other analysts since the date of the analyst's current outstanding forecast; the deviation of the analyst's current forecast from the consensus forecast; and cumulative stock returns since the date of the analyst's current forecast. I find that these three variables explain about 38% of the variability in analyst forecast revisions. While there is evidence of a relation between changes in earnings expectations and price changes, virtually all of the explanatory power of my model arises from other analyst forecasts. Section 2 describes the data bases used and the sample selection process. Section 3 presents the model and method for predicting individual analyst forecasts. Section 4 reports the bias and accuracy of the predicted forecasts. Conclusions are in section 5.

On average, nonconvertible preferred stocks have significantly positive abnormal returns and trading volume on the ex-day. For the less liquid stocks, however, the abnormal returns are significantly positive, and abnormal trading volume is insignificantly different from zero. This evidence suggests that long-term individual investors set the ex-day prices of less liquid stocks. For the more liquid stocks, the ex-day abnormal returns are closer to zero, and there is significantly positive abnormal trading volume on the ex-day and the day before the ex-day. These results suggest that short-term investors set the ex-day prices of more liquid stocks through dividend capture strategies. Despite this evidence, some inconsistent empirical findings make the overall evidence on dividend capture somewhat mixed.

The information content of Value Line Investment Survey rank changes is investigated. The results suggest rank changes affect common stock prices, but the effect varies by the type of rank change. Changes from rank 2 to rank 1 have the most dramatic impact on prices. A cross-sectional analysis finds small firms have a greater reaction to a rank change than larger firms, which supports theories on the frequency of report arrival and precision of information. A speed of adjustment test concludes the prices of individual securities adjust to the information in a rank change over a multiple-day period.

The relation between changing expectations of earnings and changing security prices is a central issue in accounting and finance. In this article, I reexamine common stock returns surrounding earnings forecast revisions, using a large database of individual analyst forecasts, and provide new evidence on market expectations of revisions, on cross-sectional differences in price effects, and on the influence of confounding events. In summary, my findings are that revisions affect prices, but prices do not immediately assimilate the information Price reaction is greater when the percentage change in forecast is in the top or bottom five percent of the distribution of all forecast revisions. This price effect is not simply due to an association between revisions and earnings, dividend, or stock-split announcements Surprisingly, prices continue to drift in the direction of the revision for about six months after the revision. Another surprise is that price reaction does not incorporate some publicly available information. Stock returns immediately after individual analyst forecast revisions suggest that an analyst's current outstanding forecast is a better measure of the market expectations of the analyst's next forecast than an updated version (i.e., the analyst's current forecast updated for information revealed after the date of the current forecast but before the date of the next forecast). I use this curious price reaction result to create an aggressive trading strategy that predicts changes in outstanding forecasts, in other words, a strategy that predicts price reactions. The difference in abnormal returns between securities predicted to perform best and worst is more than 13 percent every six months. Changes in beta do not explain these abnormal returns.

Members of the Institutional Investor All-American Research Team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance. This contemporaneous advantage is complemented by a timing advantage; All-Americans supply forecasts more often than other analysts. Stocks returns immediately following large upward forecast revisions suggest that All-Americans impact prices more than other analysts. However, there is virtually no difference in returns following large downward revisions. Nevertheless, the collective results suggest a positive relation between reputation and performance, and, assuming that All-Americans are better paid, pay and performance.

Members of the Institutional Investor All‐American Research Team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance. This contemporaneous advantage is complemented by a timing advantage; All‐Americans supply forecasts more often than other analysts. Stocks returns immediately following large upward forecast revisions suggest that All‐Americans impact prices more than other analysts. However, there is virtually no difference in returns following large downward revisions. Nevertheless, the collective results suggest a positive relation between reputation and performance, and, assuming that All‐Americans are better paid, pay and performance.