Eternal Sunshine: Are U.S. Analysts More Optimistic than Foreign Analysts?

30 Pages Posted: 11 Sep 2014 Last revised: 10 Dec 2014

See all articles by Joshua Livnat

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Li Zhang

Rutgers, The State University of New Jersey - Accounting

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

Livnat, Joshua and Zhang, Li, Eternal Sunshine: Are U.S. Analysts More Optimistic than Foreign Analysts? (August 29, 2014). Available at SSRN: https://ssrn.com/abstract=2493805 or http://dx.doi.org/10.2139/ssrn.2493805

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
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212-998-0022 (Phone)
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Prudential Financial - Quantitative Management Associates ( email )

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Newark, NJ 07102
United States

Li Zhang (Contact Author)

Rutgers, The State University of New Jersey - Accounting ( email )

1 Washington Park, Room 996
Newark, NJ 07102
United States

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