Top investment banks,confirmation Bias,and the market pricing of forecast revisions |
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Institution: | 2. EBS Universität für Wirtschaft und Recht, Oestrich-Winkel, Germany;3. Department of Economics & Management, University of Trento, Trento, Italy;1. School of Economics, Jiaxing University, Jiaxing 314001, China;2. China-ASEAN Institute of Financcial Cooperation, Guangxi University, Nanning, Guangxi, China;3. School of Economics, Guangxi University, Nanning, Guangxi, China;5. Shenzhen International Graduate School, Tsinghua University, Shenzhen, Guangdong, China;6. Guangxi University of Finance and Economics, Graduate School, Nanning, Guangxi, China;1. Centre for Entrepreneurship & Organizational Excellence, College of Business & Economics, Qatar University, Qatar;2. Faculty of Management, Economics & Sciences, Lille Catholic University, UMR 9221-LEM-Lille Économie Management, F-59000 Lille, France;3. UMI SOURCE, University Paris-Saclay, UVSQ, IRD, France; Paris School of Business, PSB, 59 rue Nationale, 75013, Paris, France;1. Department of Economics and Finance, SHU-UTS SILC Business School, Shanghai University, Shanghai 201800, China;2. Department of Finance, Goodman School of Business, Brock University, Ontario, Canada;3. Department of Economics and Finance, College of Business Administration, University of Texas-El Paso, El Paso, TX 79968, USA;1. Leeds University Business School, United Kingdom;2. Cardiff Business School, United Kingdom |
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Abstract: | We investigate the impact of top investment banks (hereafter top IBs) on the pricing of forecast revisions through the investors' attention channel by examining the distraction effect and confirmation bias theories. The distraction effect theory predicts that investors' attention shifts to consensus revisions that align with revisions from top IBs, resulting in inattention to other revisions. This theory implies that top IBs primarily benefit investors by directing them to high-quality revisions. In contrast, the confirmation bias theory predicts that top IBs magnify market reaction to forecast revisions and benefit investors by partially offsetting investors' initial underreaction to revisions. Our findings indicate the presence of confirmation bias. We further examine the potential effects of the information content of revisions, analyst agreement, news sentiment, and information uncertainty to test the robustness of our results. Our findings suggest that top IBs ultimately contribute to the price discovery process by attracting investors' attention and this effect does not channel through the quality of consensus revisions. |
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Keywords: | Top investment banks |
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