Analyst Compensation and Forecast Bias

Tufts University, Department of Economics Working Paper No. 99-09

27 Pages Posted: 20 Sep 1999

See all articles by Dan Bernhardt

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Edward Kutsoati

Tufts University - Department of Economics

Date Written: February 2004

Abstract

In a recent paper, Bernhardt et al. (2004) developed a non-parametric test for bias in forecasts by professional financial analysts that is robust to correlated information amongst analysts and information arrival over the forecasting cycle. The tests show that analysts anti-herd: Analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information. In this campanion paper, we show that for those analysts that report later in the forecast-horizon, a reward scheme that is convex in relative performance may shed some light on this strategic behavior. The pattern and magnitude of the forecast bias in the last forecast are identical to the results in Bernhardt et al., and slightly higher in some sub-samples. An analysis of daily returns around the date of earnings announcement reveals that investors do not fully unravel the bias in late forecasts.

JEL Classification: G2, D8, L2

Suggested Citation

Bernhardt, Dan and Campello, Murillo and Kutsoati, Edward, Analyst Compensation and Forecast Bias (February 2004). Tufts University, Department of Economics Working Paper No. 99-09. Available at SSRN: https://ssrn.com/abstract=173888 or http://dx.doi.org/10.2139/ssrn.173888

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Edward Kutsoati (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2688 (Phone)
617-627-3917 (Fax)

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