Does an Asset Management Firm's Stock Holding Made in Response to Buy-Side Analysts’ Prior Recommendations Induce Subsequent Forecast Optimism?

36 Pages Posted: 18 Oct 2015

See all articles by Hun-Tong Tan

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Rong-Ruey Duh

National Taiwan University - Department of Accounting

Shean-Bii Chiu

Department of Finance, National Taiwan University

Shu-Hsing Li

National Taiwan University

Date Written: October 1, 2015

Abstract

In this study, we examine whether buy-side analysts’ forecasts are biased when they cover stocks that are held by the mutual fund. Specifically, we conduct an experiment with buy-side analysts and fund managers where we manipulate whether the forecasts are released to colleagues and clients or kept private, and whether the mutual fund has made an investment in the stock based on the recommendation of the analyst. We posit and find evidence that when forecasts are made available to other colleagues and clients, participants’ forecasts are more positive when the mutual fund has a holding (versus no holding) in a stock based on the buy-side analysts’ recommendations. These forecasts are also more optimistic than a control group where participants have an accuracy goal. This effect disappears when the forecasts are kept private. Our findings indicate that institutional features in the asset management setting create conditions for buy-side analysts’ forecasts to be optimistic.

Keywords: buy-side analysts, fund managers, forecasts, optimism

JEL Classification: C91, G93

Suggested Citation

Tan, Hun-Tong and Duh, Rong-Ruey and Chiu, Shean-Bii and Li, Shu-Hsing, Does an Asset Management Firm's Stock Holding Made in Response to Buy-Side Analysts’ Prior Recommendations Induce Subsequent Forecast Optimism? (October 1, 2015). Available at SSRN: https://ssrn.com/abstract=2675686 or http://dx.doi.org/10.2139/ssrn.2675686

Hun-Tong Tan (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

Rong-Ruey Duh

National Taiwan University - Department of Accounting ( email )

50 Lane 144, Section 4
Taipei 32026
Taiwan

Shean-Bii Chiu

Department of Finance, National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Shu-Hsing Li

National Taiwan University ( email )

50 Lane 144, Section 4
Taipei 32026
Taiwan
886 2 3366 1117 (Phone)

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