Do German Security Analysts Herd?

Financial Markets and Portfolio Management, Vol. 23, No. 1, pp. 3-29

37 Pages Posted: 6 Oct 2007 Last revised: 13 Dec 2009

See all articles by Marcel Naujoks

Marcel Naujoks

Technische Universität München (TUM)

Kevin Aretz

Alliance Manchester Business School

Alexander Gabriel Kerl

University of Giessen - Department of Financial Services

Andreas Walter

University of Giessen - Department of Financial Services

Date Written: October 4, 2007

Abstract

In this study, we employ an innovative new methodology suggested by Bernhardt et al. (2006) to examine the herding (or anti-herding) behavior of German analysts in case of earnings forecasts. Our methodology avoids well-known shortcomings often encountered in related studies, such as, e.g., correlated information signals, unexpected common shocks to earnings, systematic optimism or pessimism or forecast target mismeasurement. Our findings suggest that German analysts anti-herd, i.e., they systematically issue earnings forecasts which are further away from the consensus forecast than their private information indicates. Furthermore, we analyze the association between herding behavior and different characteristics which might influence analysts' herding behavior, like the size of the brokerage, the experience of the analyst and the coverage of firms of the Neuer Markt. We mainly confirm findings for the U.S., e.g., that the anti-herding phenomenon is more severe in cases of higher competition among analysts. Contrary to anecdotal evidence, we also find anti-herding behavior when analysts issue forecasts for Neuer Markt firms during the 'new economy' bubble.

Keywords: Earnings forecasting, financial analysts, herding behavior, German stock market

JEL Classification: G14, G15 , G29, M41

Suggested Citation

Naujoks, Marcel Bruno and Aretz, Kevin and Kerl, Alexander Gabriel and Walter, Andreas, Do German Security Analysts Herd? (October 4, 2007). Financial Markets and Portfolio Management, Vol. 23, No. 1, pp. 3-29. Available at SSRN: https://ssrn.com/abstract=1019276 or http://dx.doi.org/10.2139/ssrn.1019276

Marcel Bruno Naujoks

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Kevin Aretz

Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL, Lancashire
United Kingdom
+44(0) 161 275 6368 (Phone)
+44(0) 161 275 4023 (Fax)

HOME PAGE: http://www.kevin-aretz.com

Alexander Gabriel Kerl

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

Andreas Walter (Contact Author)

University of Giessen - Department of Financial Services ( email )

Betriebswirtschaftslehre V
Giessen, 35394
Germany

HOME PAGE: http://wiwi.uni-giessen.de/ma/dat/walter/Andreas_Walter/

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