Do Analysts Herd? An Analysis of Recommendations and Market Reactions
46 Pages Posted: 25 Mar 2008
Date Written: January 2008
This paper develops and implements a new test to investigate whether sell-side analysts herd around the consensus when they make stock recommendations. Our empirical results support the herding hypothesis. Stock price reactions following recommendation revisions are stronger when the new recommendation is away from the consensus than when it is closer to it, indicating that the market recognizes analysts' tendency to herd. We find that analysts from larger brokerages and analysts following stocks with smaller dispersion across recommendations are more likely to herd.
Keywords: herding, market efficiency, private information
JEL Classification: G14, G20, D82, D83
Suggested Citation: Suggested Citation