Numerous stock market studies over the last two decades have provided evidence of anomalous price behaviour that is consistent with over-reaction to information. Security analysts'; forecasts of corporate earnings are often seen as a potential driver for prices and so have also been investigated for evidence of over-reaction. While excessive volatility in analysts'; forecasts is reported in DeBondt and Thaler (1990) it has been suggested that analysts'; reactions may differ across different information types (Abarbanell and Bernard, 1992). Easterwood and Nutt (1999) hypothesize that analysts may under-react to negative information but over-react to positive information. This research examines analysts'; reactions to one major piece of negative information or 'bad news';, namely the impact of 9/11 on international airlines. The time profile of analysts'; forecast errors indicates that analysts over-reacted in the immediate wake of 9/11, in a manner consistent with DeBondt and Thaler's general over-reaction hypothesis rather than Easterwood and Nutt's differential good/bad news reaction hypothesis.
