Who herds? |
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Authors: | Dan Bernhardt Murillo Campello Edward Kutsoati |
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Institution: | aDepartment of Economics, University of Illinois, Champaign, IL 61820, USA;bDepartment of Finance, University of Illinois, Champaign, IL 61820, USA;cDepartment of Economics, Tufts University, Medford, MA 02155, USA |
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Abstract: | This paper develops a test for herding in forecasts by professional financial analysts that is robust to (a) correlated information amongst analysts; (b) common unforecasted industry-wide earnings shocks; (c) information arrival over the forecasting cycle; (d) the possibility that the earnings that analysts forecast differ from what the econometrician observes; and (e) systematic optimism or pessimism among analysts. We find that forecasts are biased, but that analysts do not herd. Instead, analysts “anti-herd”: Analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information. |
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Keywords: | Earnings forecasting Financial analysts Herding Econometric test Contrarian behavior |
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