Do security analysts speak in two tongues?

Do security analysts speak in two tongues?
Ulrike Malmendier, Ulrike Malm ...
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Last edited by WorkBot
May 1, 2010 | History

Do security analysts speak in two tongues?

"Why do analysts display overoptimism about the stocks they cover? According to the selection hypothesis, analysts pick their favorite stocks and are truly too optimistic. According to the conflict-of-interest hypothesis, analysts distort their view to maximize profits via commissions and underwriting business, in particular if affiliated with an underwriting bank. We analyze the concurrent issuance of recommendations and earnings forecasts to assess the relative importance of both explanations for affiliated and for unaffiliated analysts. First, we show that recommendations and forecasts reach different audiences. Small traders follow recommendations but not forecast updates; large traders discount recommendations and follow earnings forecasts. As a result, analysts may choose to distort recommendations but prove their analyst quality in their forecasts. The selection hypothesis implies, instead, a positive correlation between recommendation and forecast overoptimism. We find that, while affiliated analysts issue more optimistic recommendations than unaffiliated analysts, their earnings forecasts are more pessimistic. Moreover, forecast optimism is negatively correlated with recommendation optimism for affiliated analysts but positively for unaffiliated analysts. Similar discrepancies between the timing of recommendations and forecasts confirm that active distortion is a major explanation for the recommendation optimism of affiliated analysts."--abstract.

Publish Date
Language
English
Pages
30

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Edition Availability
Cover of: Do security analysts speak in two tongues?
Do security analysts speak in two tongues?
2007, National Bureau of Economic Research
in English
Cover of: Do security analysts speak in two tongues?
Do security analysts speak in two tongues?
2007, National Bureau of Economic Research
electronic resource / in English

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Book Details


Edition Notes

"May 2007"

Includes bibliographical references (p. 29-30).

Also available in PDF from the NBER world wide web site (www.nber.org).

Published in
Cambridge, Mass
Series
NBER working paper series -- no. 13124., Working paper series (National Bureau of Economic Research) -- working paper no. 13124.

The Physical Object

Pagination
30, [18] p. ;
Number of pages
30

ID Numbers

Open Library
OL17634577M
OCLC/WorldCat
157034265

Source records

Oregon Libraries MARC record

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May 1, 2010 Edited by WorkBot merge works
December 10, 2009 Created by WorkBot add works page