Analyst Herding and Short-Term Reversals

47 Pages Posted: 29 Aug 2012 Last revised: 15 Aug 2015

See all articles by Jean-Sebastien Michel

Jean-Sebastien Michel

HEC Montreal

J. Ari Pandes

University of Calgary - Haskayne School of Business

Date Written: August 14, 2015

Abstract

This paper shows that analysts’ herding forecasts are accompanied by significant return reversals of 116 basis points per month, while anti-herding forecasts render reversals insignificant. These results are magnified among illiquid stocks and during high VIX months. Since analyst herding is specific to covered firms, we are also able to examine information spillover from covered to uncovered firms. Among uncovered firms, herding forecasts are accompanied by reversals of 118 basis points, but anti-herding forecasts render reversals insignificant. Our findings suggest that herding forecasts do not contain any private information, while anti-herding forecasts have a much higher informational content that can help reduce the information asymmetry between informed and uninformed investors.

Keywords: Short-Term Reversal, Private Information, Analyst Herding, Liquidity, Analyst Earnings Forecasts

JEL Classification: G12, G14, G24

Suggested Citation

Michel, Jean-Sebastien and Pandes, J. Ari, Analyst Herding and Short-Term Reversals (August 14, 2015). Available at SSRN: https://ssrn.com/abstract=2137299 or http://dx.doi.org/10.2139/ssrn.2137299

Jean-Sebastien Michel

HEC Montreal ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-7153 (Phone)
514-340-5632 (Fax)

J. Ari Pandes (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
403 220-4350 (Phone)

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