Who Herds?

Journal of Financial Economics, Forthcoming

Posted: 6 Mar 2006

See all articles by Dan Bernhardt

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Edward Kutsoati

Tufts University - Department of Economics

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Abstract

This paper develops a test for herding in forecasts by professional financial analysts that is robust to (a) correlated information amongst analysts; (b) common unforecasted industry-wide earnings shocks; (c) information arrival over the forecasting cycle; (d) the possibility that the earnings that analysts forecast differ from what the econometrician observes; and (e) systematic optimism or pessimism among analysts. We find that forecasts are biased, but that analysts do not herd. Instead, analysts anti-herd: Analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information.

Keywords: Earnings forecasting, Financial analysts, Herding, Econometric test, Contrarian behavior

JEL Classification: G14, C14, C53, G29

Suggested Citation

Bernhardt, Dan and Campello, Murillo and Kutsoati, Edward, Who Herds?. Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=887519

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Murillo Campello (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138

Edward Kutsoati

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2688 (Phone)
617-627-3917 (Fax)

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