Analysts' Weighting of Private and Public Information

Posted: 29 Feb 2008

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

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Abstract

Using both a linear regression method and a probability-based method, we find that on average, analysts place larger than efficient weights on (i.e., they overweight) their private information when they forecast corporate earnings. We also find that analysts overweight more when issuing forecasts more favorable than the consensus, and overweight less, and may even underweight, private information when issuing forecasts less favorable than the consensus. Further, the deviation from efficient weighting increases when the benefits from doing so are high or when the costs of doing so are low. These results suggest that analysts' incentives play a larger role in misweighting than their behavioral biases.

Keywords: fetus, heart rate, prenatal environment, prenatal drug exposure, cigarette smoking

Suggested Citation

Chen, Qi and Jiang, Wei, Analysts' Weighting of Private and Public Information. Review of Financial Studies, Vol. 19, No. 1, pp. 319-355, 2006. Available at SSRN: https://ssrn.com/abstract=900712

Qi Chen (Contact Author)

Duke University - Fuqua School of Business ( email )

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Wei Jiang

Columbia Business School - Finance and Economics ( email )

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