In-Group Bias in Financial Markets

52 Pages Posted: 13 Dec 2016 Last revised: 24 May 2022

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; 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; 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: May 24, 2021

Abstract

This paper examines whether social biases such as the in-group bias affects the behavior of equity analysts and the information dissemination process. We find that sell-side equity analysts exhibit more favorable views about firms headed by CEOs of their own type. Using gender to identify group memberships, we demonstrate that male analysts have lower earnings forecasts and worse stock recommendations for firms headed by female CEOs. Consequently, consensus earnings forecasts for female-headed firms are downward biased and earnings surprises are stronger. Examining market reaction around earnings announcements, we find that market participants do not fully compensate for gender-induced in-group bias.

Keywords: In-group bias, female analysts, earnings forecasts, stock recommendations, forecast accuracy, market reaction

JEL Classification: G14, G24

Suggested Citation

Jannati, Sima and Kumar, Alok and Niessen-Ruenzi, Alexandra and Niessen-Ruenzi, Alexandra and Wolfers, Justin, In-Group Bias in Financial Markets (May 24, 2021). 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 )

511 Cornell Hall
COLUMBIA, MO 65211
United States

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

517B 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

University of Mannheim, Department of Finance ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181 1595 (Phone)

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 )

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Ann Arbor, MI 48109
United States
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HOME PAGE: http://www.nber.org/~jwolfers

The University of Sydney - Discipline of Economics ( email )

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Brookings Institution - Economic Studies Program ( email )

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

Peterson Institute for International Economics ( email )

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Centre for Economic Policy Research (CEPR)

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

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Kiel Institute for the World Economy ( email )

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