Is information really efficient for the market? Evidence of confirmatory bias in China

We use the earnings forecast revisions during the period 2005–2019 to study the performance of confirmatory bias in China. As we have found, analysts are less likely to make earnings forecast revisions when the latest two signals are opposite or different from their previous beliefs. In addition, we find confirmatory bias has a significantly positive influence on analysts' forecast dispersions, especially when new signals are negative. Finally, we extend the practical significance by combining confirmatory bias with pricing efficiency and find significant harms, especially in bull markets. Uninformed investors and market supervisors should take precautions to avoid this bias.