Economic Policy Uncertainty And Analyst's Earnings Forecast Biases

Economic policy is important means for the government to intervene in economic development and shape the market environment.The uncertainty of factors such as economic policy content,timing of implementation and expected effects has led to economic policy uncertainty for economic entities such as enterprises and investors.So far,academic research has confirmed that economic policy uncertainty will affect micro-enterprise activities and investor decision-making behavior,but less on the impact of economic policy uncertainty on the predictive behavior of analysts,the financial market intermediary,.In fact,the uncertainty of economic policy will affect the macro policy environment,market risk and corporate performance,thus affecting the analyst's forecast basis,causing the bias of analysts' forecast results.Considering this,studying the impact of uncertainty of economic policy on analysts' forecast behavior would be of great signifiance for maintaining the effective operation of the capital market.In this regard,this paper uses the sample data of Shanghai-Shenzhen A-share non-financial listed companies from 2007 to 2016,based on the forecast behavior of seller analysts in the capital market,using the two China Economic Policy Uncertainty Indexes developed by Baker et al.(2016),Lu Shangqin and Huang Wei(2018)respectively in order to jointly measure economic policy uncertainty in China.The purpose of this research is to explore the impact of economic policy uncertainty on analysts' forecast behavior and its mechanism,and examine the function of analyst's local advantages and continuous tracking.Also,further examination was done to explore the role of analyst veteranship and industry reputation played in the forecast performance.The results show that: First,economic policy uncertainty will increase the difficulty of analysts' prediction tasks by increasing the unpredictability of corporate earnings and weakening the analyst's information absorption ability,thereby reducing the accuracy of analysts' predictions and increasing divergent degree,prompting it to make pessimistic predictions;second,analysts' local advantages(tracking local companies)and continuous tracking behavior(tracking the same company for more than three consecutive years)can effectively resist the shock of economic policy uncertainty on its forecast quality.After a series of robustness tests and endogeneity tests,the basic conclusions remain reliable.In addition,this paper further studies the role of analyst seniority and industry reputation in the period ofpolicy uncertainty,and finds that analysts' work experience can effectively weaken the poor forecast performance under policy uncertainty,while whose ranking is the top of the industry,do not predict better than the ones who have not entered the rankings.Compared with previous studies on the uncertainties of economic policy from the enterprise level,this paper focuses on the individual level of analysts,studying the impact of policy uncertainty on individual forecast performance,and the role of analysts' personal traits and behaviors.The research results have important implications for the government,regulators,investors and analysts in the uncertain period: the government should try to maintain the long-term and stability of the policy;the securities industry regulator should regulate the disclosure of public information of listed companies,strengthen the construction and education of the analysts team;investors should treat the analyst's forecast report rationally,and knowing many personal trait factors will cause prediction bias.Compared with the industry reputation of superstitious analysts,the analyst's seniority and local advantages should be valued.And the tangible nature of predictive depth;analysts themselves should strive to leverage local strengths,actively search for private information,maintain ongoing tracking,and accumulate work experience to correct forecast bias.