Who Herds?

University of Illinois Working Paper

AFA 2006 Boston Meetings Paper

35 Pages Posted: 18 Mar 2005  

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Edward Kutsoati

Tufts University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 22, 2004


This paper develops a test for forecast bias that is robust to (a) correlated information amongst analysts; (b) common unforecasted industry-wide earnings shocks; (c) information arrival at different points of the forecast horizon; and (d) the possibility that the measure of earnings that analysts forecast differs from that which the econometrician observes. We find no empirical support for herding. On the contrary, analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information. We find that the forecast bias is economically large and declines with the amount of information at an analyst's disposal. The magnitude of the bias, its systematic variation with analyst following, and the pattern of bias in forecast revisions indicate that the bias is strategically chosen. In particular, the data cannot be explained by analyst myopia or analyst overconfidence.

Suggested Citation

Bernhardt, Dan and Campello, Murillo and Kutsoati, Edward, Who Herds? (December 22, 2004). University of Illinois Working Paper; AFA 2006 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=304723 or http://dx.doi.org/10.2139/ssrn.304723

Dan Bernhardt (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Murillo Campello

Cornell University ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Edward Kutsoati

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2688 (Phone)
617-627-3917 (Fax)

Paper statistics

Abstract Views