  I study the behavior and the performance of the long-term forecasts issued by
financial analysts with respect to the Extrapolation Hypothesis. That
hypothesis states that investors, extrapolating from the firms' recent
performances, are too optimistic about growth and large firms and too
pessimistic about value and small firms. I find that the forecasting errors are
higher for the growth firms and large firms, thus providing support for the
Extrapolation Hypothesis. However, in addition to the rosy picture of the
growth and large firms, the forecasts of the value and small firms are not so
gloomy in many cases. My analysis also reveals that expectations move together
for all categories of book-to-market and all sizes of firms. I proceed by
investigating some common factors that may influence analysts' long-term
forecasts, including co-movement and excessive optimism. I find that macro
factors beyond a firm's recent performance may influence the formation of
expectations.
