We document an improvement in analysts’ forecast accuracy following increased sector ETF ownership. We identify a possible channel for this result, i.e., because ETFs are more informative with respect to industry-level information, analysts learn...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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We document an improvement in analysts’ forecast accuracy following increased sector ETF ownership. We identify a possible channel for this result, i.e., because ETFs are more informative with respect to industry-level information, analysts learn directly and efficiently from ETFs about this type of information component in individual firms’ earnings. As a result, analysts have an opportunity to re-optimize their attention to firm-specific information and improve forecast accuracy. Consistent with such a channel, analysts of follower firms revise their earnings forecasts more efficiently (i.e., exhibit greater sensitivity) to an announcer firm’s earnings announcement in the same sector ETF. Furthermore, this revision is stronger when ETFs are more actively traded, when analysts are less experienced with individual firms, and when analysts follow more firms and cover more industries