Do Financial Analysts Herd?

20 Pages Posted: 14 May 2019

See all articles by Jin Yeub Kim

Jin Yeub Kim

University of Nebraska at Lincoln - Department of Economics

Yongjun Kim

University of Seoul

Myungkyu Shim

Yonsei University - School of Economics

Date Written: April 15, 2019

Abstract

Financial analysts may have strategic incentives to herd or to anti-herd when issuing forecasts of firms' earnings. This paper develops and implements a new test to examine whether such incentives exist and to identify the form of strategic behavior. We use the equilibrium property of the finite-player forecasting game of Kim and Shim (2019) that forecast dispersion decreases as the number of forecasters increases if and only if there is strategic complementarity in their forecasts. We find strong evidence that supports strategic herding behavior of financial analysts. This finding is robust to different forecast horizons and sequential forecast release.

Keywords: financial analysts, earnings forecasting, finite-player forecasting game, strategic behavior, herding

JEL Classification: D83, E37, G17

Suggested Citation

Kim, Jin Yeub and Kim, Yongjun and Shim, Myungkyu, Do Financial Analysts Herd? (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3372445 or http://dx.doi.org/10.2139/ssrn.3372445

Jin Yeub Kim (Contact Author)

University of Nebraska at Lincoln - Department of Economics ( email )

Lincoln, NE 68588-0489
United States

HOME PAGE: http://sites.google.com/site/jinyeubkim

Yongjun Kim

University of Seoul ( email )

Seoul
Korea, Republic of (South Korea)

Myungkyu Shim

Yonsei University - School of Economics ( email )

Seoul
Korea, Republic of (South Korea)

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