Learning about Analysts
51 Pages Posted: 30 Nov 2013 Last revised: 13 Dec 2018
Date Written: December 15, 2018
Abstract
We examine an analyst with career concerns making cheap talk recommendations to a sequence of traders, each of whom possesses private information concerning the analyst's ability. The recommendations of the analyst influence asset prices that are then used to evaluate the analyst. An endogeneity problem thus arises. In particular, if the reputation of the analyst is sufficiently high then an incompetent but strategic analyst is able to momentarily hide her type. An equilibrium in which the market eventually learns the analyst type always exists. However, under some conditions, an equilibrium also exists in which the incompetent analyst is able to hide her type forever.
Keywords: Analysts; Career Concerns; Reputations; Social Learning
JEL Classification: D82, D83, D84, G14, G20
Suggested Citation: Suggested Citation