Benjamin Segal studies financial analysts’ skills and the arrival of unanticipated news events

Benjamin Segal’s coauthored paper, “The Interpretation of Unanticipated News Arrival and Analysts’ Skill,” was published in the August 2017 edition of The Journal of Financial and Quantitative Analysis. The authors distinguish between financial analysts’ roles of discovery and of interpretation. They conjecture that analysts’ interpretation skill can be gauged by their forecast revisions following material unanticipated news following nonearnings SEC Form 8-K reports, which arrive at the market unexpectedly.  They establish that unanticipated 8-Ks are informative for analysts and find that analysts who are more likely to revise their forecasts following unanticipated 8-Ks provide more timely and accurate forecasts. They document a positive association between analysts’ tendency to react to unanticipated 8-Ks and stock market reaction to their recommendation changes, suggesting investors prefer these analysts’ opinions.