Social Learning and Analyst Behavior

62 Pages Posted: 27 Nov 2019 Last revised: 30 Mar 2022

See all articles by Alok Kumar

Alok Kumar

University of Miami - Miami Herbert Business School

Ville Rantala

University of Miami - Department of Finance

Rosy Xu

The Chinese University of Hong Kong

Date Written: January 19, 2021

Abstract

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

Suggested Citation

Kumar, Alok and Rantala, Ville and Xu, Rosy, Social Learning and Analyst Behavior (January 19, 2021). Journal of Financial Economics (JFE), Vol. 143, No. 1, 2022, Available at SSRN: https://ssrn.com/abstract=3487103 or http://dx.doi.org/10.2139/ssrn.3487103

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

517B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://sites.google.com/view/alokmiami/home

Ville Rantala (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Rosy Xu

The Chinese University of Hong Kong ( email )

Rm 1003, 10/F, Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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