We show that understanding the role of analysts' forecast bias is central to discovering the behavior that causes some stocks to have high analyst forecast dispersion. This finding is important because stocks with high analyst forecast dispersion contribute significantly to many important...

A great number of academic papers evaluate the potential for incentive-driven bias in sell-side analysts' earnings forecasts. Yet bias does not necessarily invalidate a forecast, nor does it impinge on its relative quality. We find that analysts' forecasts are optimistic relative to recently...