First Impressions and Analyst Forecast Bias

52 Pages Posted: 23 Apr 2019

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Ben Lourie

University of California, Irvine

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business

Phong Truong

Pennsylvania State University

Date Written: March 24, 2019

Abstract

We present evidence that equity analysts suffer from a first impression bias in forecasting future firm performance. If a firm does particularly well (poorly) in the year before an analyst follows it, the analyst tends to make optimistic (pessimistic) forecasts of its future performance relative to other analysts covering the same firm at the same time. Negative first impressions have a stronger effect than positive ones. Analysts with more negative first impressions of a firm tend to terminate their coverage earlier than analysts with positive first impressions. We find similar effects of first impressions on analyst price targets and recommendations. Finally, we find that the stock market adjusts for analyst first impression bias.

Keywords: First Impressions, Equity Analysts, Behavioral Finance

JEL Classification: G14, G24, G4, M41

Suggested Citation

Hirshleifer, David A. and Lourie, Ben and Ruchti, Thomas and Truong, Phong, First Impressions and Analyst Forecast Bias (March 24, 2019). Available at SSRN: https://ssrn.com/abstract=3359354 or http://dx.doi.org/10.2139/ssrn.3359354

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ben Lourie (Contact Author)

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Phong Truong

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States
16802 (Fax)

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