Range Has It: Decoding the Information Content of Forecast Ranges

Although prior studies typically focus on analyst consensus forecast and management range forecast midpoint or endpoint, we expect that the range of individual analyst estimates and its relation with the management forecast range convey incremental information to investors and analysts. Specifically, we examine the information content of whether and how much managers’ forecast ranges overlap with the range of individual analysts’ estimates (i.e., overlap). We predict and find that low-overlap forecasts are associated with stronger market reactions (on a per unit of forecast news basis) and higher accuracy of management forecasts relative to analyst forecasts, consistent with managers signaling their superior private information via forecasts that deviate further from analyst forecast ranges. Moreover, we find that analysts with prior estimates out of management forecast ranges are more likely to revise into management forecast range, less likely to revise towards the consensus, and more likely to improve in revised forecast accuracy, when responding to low-overlap management forecasts. Together our findings suggest that investors and analysts view low-overlap management forecasts as signal of superior private information.