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Herding among Investment Newsletters: Theory and Evidence

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  • John R. Graham

    (Fuqua School of Business, Duke University)

Abstract

A model is developed which implies that if an analyst has high reputation or low ability, or if there is strong public information that is inconsistent with the analyst's private information, she is likely to herd. Herding is also common when informative private signals are positively correlated across analysts. The model is tested using data from analysts who publish investment newsletters. Consistent with the model's implications, the empirical results indicate that a newsletter analyst is likely to herd on "Value Line's "recommendation if her reputation is high, if her ability is low, or if signal correlation is high. Copyright The American Finance Association 1999.

Suggested Citation

  • John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, February.
  • Handle: RePEc:bla:jfinan:v:54:y:1999:i:1:p:237-268
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