In-Group Bias in Financial Markets
52 Pages Posted: 13 Dec 2016 Last revised: 24 May 2022
Date Written: May 24, 2021
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: Suggested Citation