Analyst Quality, Optimistic Bias, and Reactions to Major News
44 Pages Posted: 17 Dec 2008 Last revised: 4 Jun 2009
Date Written: January 6, 2009
We investigate whether financial analysts' characteristics are associated with the asymmetric response of stock recommendations between positive and negative information shocks. We hypothesize that incentives exist such that the analyst's experience, expertise, reputation, and career concerns are positively associated with the timely revelation of negative news about a firm. As a result, we expect the asymmetric response to be reduced for superior analysts. Using the stock return/recommendation changes relation, we find that the asymmetric reaction is inversely associated with analysts' characteristics that are indicative of higher quality. Further, the reduction is only present when analysts have negative private information. We therefore contribute to the research on differing analyst characteristics and report quality and provide additional insights on analyst bias.
Keywords: Analysts, Recommendations, Optimistic Bias, Information Asymmetry
JEL Classification: G29, M41
Suggested Citation: Suggested Citation