The Sobering Up Effect: Why Analysts Become Less Optimistic as the Release of Actual Earnings Gets Closer.

Using companies listed on the Taiwan Stock Exchange and the Taipei Exchange between 2000 and 2017, this study explores whether the sobering-up effect exists in analysts' earnings forecasts. Further, this study also examined whether the aggregate bias (accuracy) of analysts' annual earnings forecasts vary with analysts' familiarity with the forecasted companies and whether analysts' forecasting behavior is influenced by market sentiment. Our findings provide evidence for the existence of sobering-up effect on analysts' earnings forecasts. When analysts forecast earnings for companies that they are less familiar with or the market is bearish, the analysts' strength of sobering is more significant. [ABSTRACT FROM AUTHOR]