Artificially Intelligent Analyst Sentiment and Aggregate Market Behavior

70 Pages Posted: 6 Dec 2022 Last revised: 15 Mar 2023

See all articles by Vidhi Chhaochharia

Vidhi Chhaochharia

University of Miami - Department of Finance

Alok Kumar

University of Miami - Miami Herbert Business School

Ville Rantala

University of Miami - Department of Finance

Alan L. Zhang

Florida International University (FIU)

Date Written: March 14, 2023

Abstract

This study develops a new machine learning-based measure of aggregate analyst sentiment. We first train analyst-specific neural network models that capture each analyst's predictable forecast bias across firms and then aggregate the information at the industry and market levels. We decompose the aggregated forecast errors of analysts into predictable and non-predictable components, and interpret the non-predictable component as a measure of analyst sentiment. Variation in analyst sentiment along the business cycle suggests that they systematically underreact to macroeconomic information. A Long-Short trading strategy based on industry-level analyst sentiment earns an annualized alpha of over 7%.

Keywords: analyst biases, earnings forecasts, aggregate analyst sentiment, return predictability, machine learning

JEL Classification: C45, G14, G24

Suggested Citation

Chhaochharia, Vidhi and Kumar, Alok and Rantala, Ville and Zhang, Alan L., Artificially Intelligent Analyst Sentiment and Aggregate Market Behavior (March 14, 2023). Available at SSRN: https://ssrn.com/abstract=4249442 or http://dx.doi.org/10.2139/ssrn.4249442

Vidhi Chhaochharia

University of Miami - Department of Finance ( email )

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

Alok Kumar (Contact Author)

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

University of Miami - Department of Finance ( email )

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

Alan L. Zhang

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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

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