Peter Joos, Joseph D. Piotroski, Suraj Srinivasan
We use a data set of sell-side analysts’ scenario-based equity valuation estimates to examine whether analysts can assess the state-contingent risk surrounding a firm's fundamental value. We find that the spread in analysts’ scenario-based valuations captures the riskiness of operations and predicts the absolute magnitude of long-run valuation errors and future changes in firm fundamentals. We also show that analysts’ assessment of fundamental risk and its predictive ability systematically improved after the financial crisis, consistent with the macroeconomic shock raising analysts’ awareness of firms’ systematic risk exposures. © 2016
INSEAD, Asia Campus, 1 Ayer Rajah Avenue, Singapore, 138676, Singapore; Stanford University, Graduate School of Business, Knight Management Center, 655 Knight Way, Stanford, 94305, CA, United States; Harvard Business School, Soldiers Field, Boston, 02163, MA, United States
