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Analyzing the analysts: Career concerns and biased earnings forecasts (2003)
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| Venue: | Journal of Finance |
| Citations: | 173 - 3 self |
BibTeX
@ARTICLE{Hong03analyzingthe,
author = {Harrison Hong and Jeffrey D. Kubik},
title = {Analyzing the analysts: Career concerns and biased earnings forecasts},
journal = {Journal of Finance},
year = {2003},
pages = {313--351}
}
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Abstract
We examine securityanalysts’career concerns byrelating their earnings forecasts to job separations. Relativelyaccurate forecasters are more likelyto experience favorable career outcomes like moving up to a high-status brokerage house. Controlling for accuracy, analysts who are optimistic relative to the consensus are more likelyto experience favorable job separations. For analysts who cover stocks underwritten by their houses, job separations depend less on accuracyand more on optimism. Job separations were less sensitive to accuracyand more sensitive to optimism during the recent stock market mania. Brokerage houses apparentlyreward optimistic analysts who promote stocks. MANY IN THE FINANCIAL PRESS call the decade of the 1990s the ‘‘Age of the Analysts’’ on Wall Street (see Nocera (1997), Cole (2001)). Once relegated to producing boring reports on stocks in the back rooms of brokerages, analysts are now an integral part of Wall Street profit centers. Through media outlets such as CNBC, analysts reach millions of individual investors. At the same time, investment bankers relyon analysts to help them land investment-banking deals. Analysts who are influential among institutional buyers such as mutual fund managers can generate heftytrading commissions for their brokerages. The growing prominence of these analysts in financial markets has led to heightened scrutinyof their career concerns.This scrutinyhas recentlyreached a peak as well-known e-commerce analysts such as Mary Meeker and Henry Blodget were criticized for maintaining buyratings on manydot-com stocks even as their once sky-high valuations collapsed. Congressional hearings are underwayto consider reforms to protect na| « ve individual investors who lost moneyas a result of these overoptimistic recommendations.These hearings to‘‘analyze the analysts,’ ’ as some in financial press are calling it, are looking into the career n
Keyphrases
career concern earnings forecast job separation wall street overoptimistic recommendation henry blodget optimistic analyst financial market heftytrading commission institutional buyer wall street profit center relativelyaccurate forecaster likelyto experience favorable job separation brokerage house likelyto experience favorable career outcome integral part boring report mutual fund manager many financial press well-known e-commerce analyst investment banker sky-high valuation underwayto consider reform na ve individual investor financial press back room recent stock market mania investment-banking deal high-status brokerage house mary meeker individual investor congressional hearing medium outlet manydot-com stock optimistic relative
