First Impressions and Analyst Forecast Bias
52 Pages Posted: 23 Apr 2019
Date Written: March 24, 2019
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
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