A simultaneous equations analysis of analysts’ forecast bias and institutional ownership
AbstractIn this paper we use a simultaneous equations model to examine the relationship between analysts' forecasting decisions and institutions' investment decisions. Neglecting their interaction results in model misspecification. We find that analysts' optimism concerning a firm's earnings responds positively to changes in the number of institutions holding the firm's stock. At the same time, institutional demand responds positively to increases in analysts' optimism. We also investigate several firm characteristics as determinants of analysts' and institutions' decisions. We conclude that agency-driven behavioral considerations are significant.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2000-5.
Date of creation: 2000
Date of revision:
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