In-Group Bias in Financial Markets

46 Pages Posted: 13 Dec 2016

See all articles by Sima Jannati

Sima Jannati

University of Missouri-Columbia

Alok Kumar

University of Miami - Miami Herbert Business School

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Date Written: November 22, 2019

Abstract

This paper shows that equity analysts exhibit in-group favoritism and have less-favorable views about firms headed by out-of-group CEOs. Using gender to identify group, we find that, compared with female analysts, male analysts have lower earnings forecasts and worse stock recommendations for firms headed by female CEOs than for firms headed by male CEOs. Consequently, earnings surprises for firms headed by female CEOs are upward biased. Results are similar when we define in-groups based on race/ethnicity or political attitudes. Examining market reaction around earnings announcements, we find that market participants do not compensate for this bias.

Keywords: In-group bias; analyst forecasts; gender bias; investor behavior; market reaction

JEL Classification: G02, G14, G24

Suggested Citation

Jannati, Sima and Kumar, Alok and Niessen-Ruenzi, Alexandra and Wolfers, Justin, In-Group Bias in Financial Markets (November 22, 2019). Available at SSRN: https://ssrn.com/abstract=2884218 or http://dx.doi.org/10.2139/ssrn.2884218

Sima Jannati (Contact Author)

University of Missouri-Columbia ( email )

401 Cornell Hall
COLUMBIA, MO 65211
United States

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2447 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States
734-615-6846 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

The University of Sydney - Discipline of Economics ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia

Brookings Institution - Economic Studies Program ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.nber.org/~jwolfers

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~jwolfers

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=1737

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=157943

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

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