Are Crowded Crowds Still Wise? Evidence from Financial Analysts' Geographic Diversity

39 Pages Posted: 18 Nov 2019 Last revised: 26 Nov 2019

See all articles by William Christopher Gerken

William Christopher Gerken

University of Kentucky - Finance

Marcus Painter

Saint Louis University - Department of Finance

Date Written: November 1, 2019

Abstract

We study the effect of geographically diverse information on sell-side research analysts' individual and consensus forecasts. Using data from satellite images of parking lots of US retailers, we first document that the car counts contain valuable information in aggregate. However, analysts tend to overweight their own forecast in the direction of local car counts relative to other analysts covering the same firm at the same time but in different locations. We find when firms have more geographically concentrated analyst coverage the consensus forecast error is higher, even after controlling for the number of analysts. Analyses using within-firm variation and exogenous shocks in geographic coverage due to brokerage closures suggest this relation is causal.

Keywords: Analysts, Fintech, Geography, Diversity, Forecasts

JEL Classification: G14, G24, O3, M41

Suggested Citation

Gerken, William Christopher and Painter, Marcus, Are Crowded Crowds Still Wise? Evidence from Financial Analysts' Geographic Diversity (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3479352 or http://dx.doi.org/10.2139/ssrn.3479352

William Christopher Gerken

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

Marcus Painter (Contact Author)

Saint Louis University - Department of Finance ( email )

Saint Louis, MO
United States

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