Financial Analyst Characteristics and Herding Behavior in Forecasting

Authors

  • MICHAEL B. CLEMENT,

    1. 1The University of Texas at Austin
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    • Both authors are with The University of Texas at Austin. We are grateful to an anonymous reviewer and to Rick Green, the editor, for key suggestions. We also received useful comments from Rowland Atiase, Robert Freeman, Ross Jennings, Bill Mayew, seminar participants at Texas A&M University and the University of Texas at Austin, and especially Linda Bamber. Any remaining errors are ours. We gratefully acknowledge the assistance of I/B/E/S in providing earnings per share forecast data as part of a broad academic program to encourage earnings expectation research.

  • SENYO Y. TSE

    1. 1The University of Texas at Austin
    Search for more papers by this author
    • Both authors are with The University of Texas at Austin. We are grateful to an anonymous reviewer and to Rick Green, the editor, for key suggestions. We also received useful comments from Rowland Atiase, Robert Freeman, Ross Jennings, Bill Mayew, seminar participants at Texas A&M University and the University of Texas at Austin, and especially Linda Bamber. Any remaining errors are ours. We gratefully acknowledge the assistance of I/B/E/S in providing earnings per share forecast data as part of a broad academic program to encourage earnings expectation research.


ABSTRACT

This study classifies analysts' earnings forecasts as herding or bold and finds that (1) boldness likelihood increases with the analyst's prior accuracy, brokerage size, and experience and declines with the number of industries the analyst follows, consistent with theory linking boldness with career concerns and ability; (2) bold forecasts are more accurate than herding forecasts; and (3) herding forecast revisions are more strongly associated with analysts' earnings forecast errors (actual earnings—forecast) than are bold forecast revisions. Thus, bold forecasts incorporate analysts' private information more completely and provide more relevant information to investors than herding forecasts.

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