Analyst Quality, Optimistic Bias, and Reactions to Major News

44 Pages Posted: 17 Dec 2008 Last revised: 4 Jun 2009

See all articles by Jian Cao

Jian Cao

Florida Atlantic University

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Date Written: January 6, 2009

Abstract

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

Cao, Jian and Kohlbeck, Mark J., Analyst Quality, Optimistic Bias, and Reactions to Major News (January 6, 2009). Available at SSRN: https://ssrn.com/abstract=1316470 or http://dx.doi.org/10.2139/ssrn.1316470

Jian Cao

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33431
United States
561-297-3727 (Phone)

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
150
Abstract Views
944
rank
205,761
PlumX Metrics