Using firm-level earnings forecasts and managerial guidance data, we construct guidance surprises for analysts, i.e., differences between managerial guidance and analysts' initial forecasts. We document new evidence on expectation formation: (i) analysts overreact to managerial guidance and the overreaction is state-dependent, i.e., it is stronger for negative guidance surprises but weaker for surprises that are larger in size; and (ii) forecast revisions are neither symmetric in guidance surprises nor monotonic. We organize these facts with a model where analysts are uncertain about the quality of managerial guidance. We show that a reasonable degree of ambiguity aversion is necessary to account for the documented heterogeneous overreaction pattern.
- Ph.D., University of Zurich
- M.A., Chinese Academy of Social Sciences
- B.A., China Agricultural University
Heng CHEN finished his PhD studies at the University of Zurich in 2010. Before he moved to Switzerland, Heng has also studied at Harvard University, Stockholm University and the Chinese Academy of Social Sciences. His research areas include learning and information acquisition in macroeconomics and political economy. In particular, he works on topics related to financial, economic and political crises, belief formation and news market.
- Learning in Macroeconomics
- Political Economy
- Chinese Economy
- “Heterogeneous overreaction in expectation formation: Evidence and theory”
(with Xu Li, Guangyu Pei, amd Qian Xin) Journal of Economic Theory, 2024, 218: 105839 - “Competition for Attention and News Quality”
(with Wing Suen) American Economic Journal: Microeconomics, 2023, 15(3): 1-32 - “Radicalism in Mass Movements: Asymmetric Information and Endogenous Leadership”
(with Wing Suen) American Political Science Review, 2021, 115, 1, 286-306 - “Aspiring for Change: A Theory of Middle Class Activism”
(with Wing Suen) The Economic Journal, 2017, 127:1318-1347 - “Falling Dominoes: A Theory of Rare Events and Crisis Contagion”
(with Wing Suen), American Economic Journal: Microeconomics, 2016, 8(1):228-55 - “The Power of Whispers: A Theory of Rumor, Communication and Revolution”
(with Yang Lu and Wing Suen) Technical Appendix International Economic Review, 2016, 57(No.1):89-116 - “Attention Misallocation, Social Welfare and Policy Implications”
(with Yulei Luo and Guangyu Pei), Journal of Economic Dynamics and Control, 2015, 59(Oct):37-57
Over the past decades the number of news outlets has increased dramatically, but the quality of news products has declined. We propose a model to reconcile these facts where consumers' attention allocation decisions not only depend on but also affect news outlets' quality choices. When competition is intensified by new entries, the informativeness of the news industry rises. Thus, attention is diverted from existing outlets, reducing their incentives to improve news quality, which begets a downward spiral. Furthermore, when attention becomes cheaper, a larger number of news outlets can be accommodated in equilibrium, but news quality still falls.