Looking under the Hood: Quantitative vs Qualitative Inputs to Analysts' Forecasts of Fundamental Risk
We study how sell-side analysts map quantitative and qualitative information from quarterly earnings conference calls into subsequent forecasts of fundamental firm risk. In terms of quantitative information, we find that analysts' risk forecasts increase in the magnitude of the earnings surprise (of either sign) and in the presence of a forecast walk-down. In contrast, analysts' risk forecasts decrease when managers issue earnings guidance and provide more financially-oriented disclosures. In terms of qualitative information, we find that more optimistic earnings calls and calls with more analyst questions result in lower risk forecasts. We further document a stronger association between earnings call information and risk forecasts during periods of high macroeconomic uncertainty, resulting in better forecast calibration. Our results are robust to alternative empirical specifications and enhance our understanding of the analyst forecasting process.