Cultural Diversity on Wall Street: Evidence from Consensus Earnings Forecasts
56 Pages Posted: 10 Nov 2017 Last revised: 5 Mar 2021
Date Written: April 30, 2020
We examine how cultural differences among agents influence the aggregate outcome of a common forecasting task. Using both exogenous shocks to sell-side analyst diversity and panel regression methods, we find that increases in analyst cultural diversity positively affect the quality of the consensus earnings forecast. We further provide evidence on the potential mechanisms underlying this result by showing that cultural diversity is associated with improvements in individual analyst forecasts, greater analyst conference call participation and interaction, and greater diversity in analyst education backgrounds and professional interests. Overall, our results indicate that greater cultural differences among agents producing an aggregate forecast are associated with a higher quality consensus forecast.
Keywords: Diversity; Culture; Forecasting; Sell-side analysts; Information aggregation
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