IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/12866.html
   My bibliography  Save this paper

Do Analysts Herd? An Analysis of Recommendations and Market Reactions

Author

Listed:
  • 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.

Suggested Citation

  • Narasimhan Jegadeesh & Woojin Kim, 2007. "Do Analysts Herd? An Analysis of Recommendations and Market Reactions," NBER Working Papers 12866, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12866
    Note: AP
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w12866.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1-1.
    2. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    3. Sorescu, Sorin & Subrahmanyam, Avanidhar, 2006. "The Cross Section of Analyst Recommendations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(1), pages 139-168, March.
    4. Narasimhan Jegadeesh & Joonghyuk Kim & Susan D. Krische & Charles M. C. Lee, 2004. "Analyzing the Analysts: When Do Recommendations Add Value?," Journal of Finance, American Finance Association, vol. 59(3), pages 1083-1124, June.
    5. Ivkovic, Zoran & Jegadeesh, Narasimhan, 2004. "The timing and value of forecast and recommendation revisions," Journal of Financial Economics, Elsevier, vol. 73(3), pages 433-463, September.
    6. Jaffe, Jeffrey F. & Mahoney, James M., 1999. "The performance of investment newsletters," Journal of Financial Economics, Elsevier, vol. 53(2), pages 289-307, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lee, Kyuseok, 2017. "Herd behavior of the overall market: Evidence based on the cross-sectional comovement of returns," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 266-284.
    2. Nerissa C. Brown & Kelsey D. Wei & Russ Wermers, 2014. "Analyst Recommendations, Mutual Fund Herding, and Overreaction in Stock Prices," Management Science, INFORMS, vol. 60(1), pages 1-20, January.
    3. Gu, Chen & Guo, Xu & Zhang, Chengping, 2022. "Analyst target price revisions and institutional herding," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. AltInkIlIç, Oya & Hansen, Robert S., 2009. "On the information role of stock recommendation revisions," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 17-36, October.
    5. Jegadeesh, Narasimhan & Kim, Woojin, 2006. "Value of analyst recommendations: International evidence," Journal of Financial Markets, Elsevier, vol. 9(3), pages 274-309, August.
    6. Azzi, Sarah & Bird, Ron, 2005. "Prophets during boom and gloom downunder," Global Finance Journal, Elsevier, vol. 15(3), pages 337-367, February.
    7. Pegah Dehghani & Ros Zam Zam Sapian, 2014. "Sectoral herding behavior in the aftermarket of Malaysian IPOs," Venture Capital, Taylor & Francis Journals, vol. 16(3), pages 227-246, July.
    8. Pierdzioch, Christian & Reid, Monique B. & Gupta, Rangan, 2016. "Inflation forecasts and forecaster herding: Evidence from South African survey data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 62(C), pages 42-50.
    9. Stephanie Kremer & Dieter Nautz, 2013. "Short†term Herding of Institutional Traders: New Evidence from the German Stock Market," European Financial Management, European Financial Management Association, vol. 19(4), pages 730-746, September.
    10. Medovikov, Ivan, 2014. "Can analysts predict rallies better than crashes?," Finance Research Letters, Elsevier, vol. 11(4), pages 319-325.
    11. Chen Su, 2023. "The price impact of analyst revisions and the state of the economy: Evidence around the world," The Financial Review, Eastern Finance Association, vol. 58(4), pages 887-930, November.
    12. Rob Bauer & Matteo Bonneti & Dirk Broeders, 2018. "Pension Funds Interconnections and Herd Behavior," DNB Working Papers 612, Netherlands Central Bank, Research Department.
    13. Adhikari, Binay K. & Agrawal, Anup, 2018. "Peer influence on payout policies," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 615-637.
    14. Clarke, Jonathan & Subramanian, Ajay, 2006. "Dynamic forecasting behavior by analysts: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 80(1), pages 81-113, April.
    15. Ansgar Belke & Ralph Setzer, 2004. "Contagion, herding and exchange-rate instability — A survey," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 39(4), pages 222-228, July.
    16. Vo, Xuan Vinh & Phan, Dang Bao Anh, 2019. "Herd behavior and idiosyncratic volatility in a frontier market," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 321-330.
    17. Nolte, Ingmar & Nolte, Sandra & Vasios, Michalis, 2014. "Sell-side analysts’ career concerns during banking stresses," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 424-441.
    18. Bosquet, Katrien & de Goeij, Peter & Smedts, Kristien, 2014. "Gender heterogeneity in the sell-side analyst recommendation issuing process," Finance Research Letters, Elsevier, vol. 11(2), pages 104-111.
    19. R. Bellando & Z. Ben Braham & S. Galanti, 2016. "The profitability of financial analysts’ recommendations: evidence from an emerging market," Applied Economics, Taylor & Francis Journals, vol. 48(46), pages 4410-4418, October.
    20. Andrey Kudryavtsev, 2018. "Holiday effect on stock price reactions to analyst recommendation revisions," Journal of Asset Management, Palgrave Macmillan, vol. 19(7), pages 507-521, December.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12866. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.