Social Learning and Analyst Behavior
62 Pages Posted: 27 Nov 2019 Last revised: 20 Jan 2021
Date Written: January 19, 2021
This study examines whether sell-side equity analysts engage in “social learning” where their earnings forecasts are influenced by the forecasts and outcomes of other analysts associated with other firms (i.e., the “peers”) in their respective portfolios. We find that analyst optimism is negatively correlated with the recent forecast errors among peers on other firms in the analyst portfolio. An analyst is also more likely to issue “bold” forecasts when similar forecasts were recently issued for other portfolio firms. Analysts learn more from their peers with similar personal characteristics. Overall, social learning is beneficial to analysts and improves their forecast accuracy.
Keywords: Sell-side equity analysts, social learning, forecast optimism, bold forecasts, in-group bias, forecast accuracy.
JEL Classification: G14, G24
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