Working Paper: NBER ID: w12866
Authors: Narasimhan Jegadeesh; Woojin Kim
Abstract: This paper develops and implements a new test to investigate whether sell-side analysts herd around the consensus when they make stock recommendations. Our empirical results support the herding hypothesis. Stock price reactions following recommendation revisions are stronger when the new recommendation is away from the consensus than when it is closer to it, indicating that the market recognizes analysts' tendency to herd. We find that analysts from larger brokerages and analysts following stocks with smaller dispersion across recommendations are more likely to herd.
Keywords: herding; analysts; market reactions; stock recommendations
JEL Codes: G14; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stock price reactions to analysts' recommendation revisions (G14) | market recognition of herding behavior (C92) |
| deviation from consensus (D70) | stock price reactions (G19) |
| analysts' reputation (G24) | herding behavior (C92) |