Range Has It: Decoding the Information Content of Forecast Ranges

Abstract

Range forecasts have emerged as the predominant form of management forecasts, but the existing literature fails to capture the information conveyed by these forecast ranges when compared to the range of individual analyst forecasts. This study fills this gap by examining the implications of overlap between management forecasts range and the range of analyst forecasts. Controlling for management forecast width and analyst forecast dispersion, we find stronger market reactions to non-overlapping management forecasts (to each unit of forecast news) than to overlapping forecasts. Using a matched sample, we demonstrate that this effect is distinct from known effects of forecast precision and forecast news magnitude on market reactions. Moreover, we find that, compared with overlapping forecasts, non-overlapping forecasts are more accurate relative to analyst forecasts and result in stronger responses by analysts whose prior forecasts are outside of management forecast ranges. Together our findings suggest that investors and analysts view managers’ non-overlapping forecasts as signals of superior private information.