In-Group Bias in Financial Markets

66 Pages Posted: 13 Dec 2016 Last revised: 16 May 2023

See all articles by Sima Jannati

Sima Jannati

University of Texas at Arlington

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 15, 2023

Abstract

This paper examines whether social biases such as the in-group bias affects the behavior of sell-side equity analysts and the information dissemination process. We find that analysts exhibit more favorable views about firms headed by CEOs of their own type. Using gender to identify group membership, we demonstrate that male analysts have lower earnings forecasts and worse stock recommendations for firms headed by female CEOs. Analyst forecasts are also relatively more optimistic when the CEO belongs to the same racial/ethnic category as the analyst, and when the CEO's name sounds similar to the analyst name. Alternative explanations for our findings based on selective information access and selection bias have no empirical support.

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 15, 2023). Available at SSRN: https://ssrn.com/abstract=2884218 or http://dx.doi.org/10.2139/ssrn.2884218

Sima Jannati (Contact Author)

University of Texas at Arlington ( email )

701 S. West Street
Arlington, TX 76019
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://sites.google.com/view/alokmiami/home

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 )

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

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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,485
Abstract Views
8,762
Rank
23,305
PlumX Metrics