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Underlying risk preferences and analyst risk‐taking behavior

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  • Sean Cleary
  • Jonathan Jona
  • Gladys Lee
  • Joshua Shemesh

Abstract

We investigate the relationship between underlying risk preferences on analysts’ work‐related decisions. Specifically, we examine whether facial width‐to‐height ratio (fWHR), an innate personal characteristic that has been linked to financial risk tolerance, is associated with analysts’ stock coverage decisions and the boldness of their earnings forecasts and stock recommendations. We find that high‐fWHR analysts cover firms with lower earnings predictability, and issue bolder forecasts and recommendations. Our findings shed new light on the black box of analyst decision making, assisting investment practitioners in evaluating the information content produced by different types of analysts and understanding the observed dispersion in analyst forecasts.

Suggested Citation

  • Sean Cleary & Jonathan Jona & Gladys Lee & Joshua Shemesh, 2020. "Underlying risk preferences and analyst risk‐taking behavior," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 949-981, July.
    • Handle: RePEc:bla:jbfnac:v:47:y:2020:i:7-8:p:949-981
    DOI: 10.1111/jbfa.12441
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