Empirical analysis of the relationship between analyst forecast accuracy and return anomalies in the Korean stock market

Abstract

This study investigates the moderating effect of uncertainty, quantified through analyst forecast accuracy and idiosyncratic volatility, on the returns of Q5-Q1 portfolio constructed based on momentum and profitability measures in the South Korean stock market from 2003 to 2022. Results reveal that return spreads across these quintiles decrease when accounting for uncertainty, underscoring the critical role it plays in influencing stock return dynamics. The research contributes to a more nuanced understanding of the interaction between uncertainty and financial decision-making processes and provides new perspectives for interpreting investment signals. Limitations of the study and potential directions for future research are also discussed.