Resumen de The role of �other information� in analysts� forecasts in understanding stock return volatility

Yaowen Shan, Stephen Taylor, Terry Walter

• This study identifies �other information� in analysts� forecasts as a legitimate proxy for future cash flows and examines its incremental role in explaining stock return volatility. We suggest that �other information� contains information about fundamentals beyond that reflected in current financial statements and reflects firms� fundamentals on a more timely basis than dividends or earnings. Using standardized regressions, we find volatility increases when current �other information� is more uncertain and increases more in response to unfavorable news compared to favorable news. Variance decomposition analysis shows that the variance contribution of �other information� dominates that of expected-return news. The incremental role of �other information� is at least half of the effect of earnings in explaining future volatility. The results are more pronounced for firms with poor information environments. Overall, our results highlight the importance of including �other information� as an additional cash-flow proxy in future studies of stock prices and volatility.