Do Social Interactions Communicate or Garble Information? Evidence from Equity Analysts

43 Pages Posted: 22 Aug 2017 Last revised: 21 Jul 2018

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

William J. Mayew

Duke University - Fuqua School of Business

Huihao Yan

Duke University

Date Written: July 11, 2018

Abstract

We examine the effects of social interaction among equity analysts on the transmission of geographic-specific information and the quality of analysts’ forecasts. We focus on interactions among local peers, defined as analysts who work in the same brokerage office (officemates) who cover different firms in the same area. We find that analysts with local peers produce more accurate earnings forecasts and generate stronger stock market responses. Their forecasts are less optimistically biased and less affected by area-specific errors in the consensus forecasts. We also find that geographic momentum in stock returns is weaker when firms are followed by analysts with local peers, and that analysts are more likely to initiate coverage of firms with more local peers. Our findings suggest that social interactions among analysts transmit useful geographic-specific information.

Keywords: Social Interaction, Financial Analysts, Geographic Information

JEL Classification: G10, G11, G12, G14, G23, G24

Suggested Citation

Chen, Qi and Mayew, William J. and Yan, Huihao, Do Social Interactions Communicate or Garble Information? Evidence from Equity Analysts (July 11, 2018). Available at SSRN: https://ssrn.com/abstract=3022183 or http://dx.doi.org/10.2139/ssrn.3022183

Qi Chen

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7753 (Phone)

William J. Mayew (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Huihao Yan

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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