Eternal Sunshine: Are U.S. Analysts More Optimistic than Foreign Analysts?
30 Pages Posted: 11 Sep 2014 Last revised: 10 Dec 2014
Date Written: August 29, 2014
Abstract
A vast literature has documented an optimistic bias of U.S. analysts. This study compares the optimistic bias of U.S. analysts to that of foreign analysts. Using the implied rate of return in target prices, i.e., the ratio of the target price to the stock price one day before the target price announcement, we show that U.S. analysts are significantly more optimistic than their foreign peers, even after controlling for the same set of firms and the same economic conditions. Furthermore, we find U.S. analysts to be more optimistic for foreign-listed stocks, and not only for U.S.-listed stocks. Similar results are obtained for stock recommendations. In subsequent analysis, we find that investors are potentially aware of this bias, reacting more strongly to earnings forecast revisions of foreign analysts than to those of U.S. analysts.
Keywords: U.S. analysts, Foreign analysts, Optimistic bias
JEL Classification: M41, G15
Suggested Citation: Suggested Citation