Analysts' forecast anchoring and discontinuous market reaction: evidence from China

Based on a comprehensive dataset of Chinese A-share stocks, we find significant evidence for analysts' anchoring in China. This anchoring behavior exists only when forecasts are lower than the industry median and correlates to a series of analysts' and corporate characteristics. The following market reactions to analyst anchoring are discontinuous: only forecasts without analysts' anchoring achieve higher and positive returns in the next period, while those with anchoring bias have no influence on the following returns. Further analyses based on the earnings response coefficient reveal that analysts' anchoring inhibits earnings information dissemination, and discontinuous stock performance is mainly from professional institutions. Overall, this paper provides evident results about analyst anchoring and its impact, and the findings are beneficial for investors to efficiently use analysts' forecast information.