Analyst Optimism and Incentives under Market Uncertainty

51 Pages Posted: 1 Oct 2015 Last revised: 14 Jul 2017

See all articles by Jin Woo Chang

Jin Woo Chang

University of Michigan at Ann Arbor

Hae Mi Choi

Loyola University Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2016


We examine how analysts’ changing incentives driven by changes in market uncertainty affect analyst output, under a simple utility-maximizing framework. Analysts issue more optimistically biased forecasts and buy recommendations under high market uncertainty (VIX). The lower reputational costs and larger benefits of optimistic output explain the increased optimistic output: Analysts are less likely to be penalized for inaccuracy and can stimulate more trading activity from optimistically biased output when market uncertainty is high. We find that the likelihood of analysts’ turnover decreases, while the trading volume associated with optimistic output increases, with VIX. No evidence suggests that analysts’ self-selection affects our findings on optimism and uncertainty.

Keywords: Sell-side Analysts; Optimism; Market Uncertainty; Reputation

JEL Classification: G24, G29, G14, M40

Suggested Citation

Chang, Jin Woo and Choi, Hae Mi, Analyst Optimism and Incentives under Market Uncertainty (December 1, 2016). Available at SSRN: or

Jin Woo Chang

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Hae Mi Choi (Contact Author)

Loyola University Chicago ( email )

25 East Pearson Street
Chicago, IL 60611
United States

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