Do Information Releases Increase or Decrease Information Asymmetry? New Evidence from Analyst Forecast Announcements

We use analyst earnings forecasts as a setting to examine a fundamental question concerning the effect of a public information release on announcement-period information asymmetry. Prior literature documents an announcement-period increase in information asymmetry for earnings announcements and management forecasts. In contrast, we predict and document an announcement-period decrease in information asymmetry for analyst forecasts. This decrease in information asymmetry at announcement is more pronounced when forecasts have greater information content. Predictably, there is a longer-term decrease in information asymmetry after all three information release types. Although the directionally opposite effects between analyst forecasts and the other two information releases exist only temporarily during the short-window announcement period, our findings highlight key differences in announcement-period information asymmetry dynamics and provide evidence that supports extant disclosure theory. Our evidence demonstrates that the directional effect of an information release on information asymmetry at announcement depends on how the information interacts with prior information held by sophisticated and unsophisticated investors