Debiased Earnings Surprises and Stock Returns in Emerging Markets

On the one hand irrational behavior of analysts may be associated with commercial interests of the bank they are working for from which the actual values of the companies’ financials can differ significantly from the consensus values. On the other hand analysts are influenced by the cognitive biases associated with information processing, as well as behavioral attitudes – template solution for the brain, which greatly simplify the decision-making process. In this paper, on the example of the markets of Russia and Brazil was investigated the effect of anchoring bias, which is one of the examples of such distortion. Analysts' forecasts are more optimistic, expressed as error of the forecasts, if the company within the industry selection has lower value of return on stock relative to the median value for the industry. Also, market reaction, as the excess return during the three-day interval around the date of publication of the quarterly results, higher for companies with higher deviation of the forecasted value of earnings per share relative to the industry median.