Herding Among Security Analysts

Posted: 16 Aug 2001

See all articles by Ivo Welch

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Abstract

The paper shows that the buy or sell recommendations of security analysts have a significant positive influence on the recommendations of the next two analysts. This influence can be traced to short-lived information in the most recent revisions. In contrast, the influence of the prevailing consensus is not stronger if the consensus accurately forecasts subsequent stock price movements. This indicates consensus herding consistent with models in which analysts herd based on little information. The consensus also has a stronger influence when market conditions are favorable. The resulting poorer information aggregation could cause bull markets to be intrinsically more "fragile" (e.g., Bikhchandani et al., J. Political Economy 100(5) (1992) 992-1026).

Keywords: Herding, Imitation, Informational Cascades, Analysts

JEL Classification: G11, G14, G24

Suggested Citation

Welch, Ivo, Herding Among Security Analysts. Journal of Financial Economics, Vol. 58, No. 3, December 2000. Available at SSRN: https://ssrn.com/abstract=251868

Ivo Welch (Contact Author)

University of California, Los Angeles (UCLA) ( email )

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HOME PAGE: http://www.ivo-welch.info

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