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Analyst herding—whether, why, and when? Two new tests for herding detection in target forecast prices

Author

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  • Reveley Callum

    (1 University of Northumbria at Newcastle, Newcastle-upon-Tyne, NE1 8ST, United Kingdom)

  • Shanaev Savva

    (2 University of Northumbria at Newcastle, Newcastle-upon-Tyne, NE1 8ST, United Kingdom)

  • Bin Yu

    (3 Zhejiang University of Technology, Jianxing Building, 288 Liuhe Rd, Hangzhou, 310023, PR, China)

  • Panta Humnath

    (4 School of Business, SH 126, Cal Poly Humboldt, 1 Harpst St, Arcata, CA 95519, USA)

  • Ghimire Binam

    (5 Robert Gordon University, Garthdee House, Garthdee Road, Aberdeen, AB10 7QB, Scotland, United Kingdom)

Abstract

This study proposes two novel tests for security analyst herding based on binomial correlation and forecast error volatility scaling, and applies it to investigate herding patterns in analyst target prices in 2008–2020 in the UK. Analysts robustly herd in their valuations, with results consistent across years, sectors, in terms of panel fixed effect, quantile, instrumental variable regressions, and when controlled for optimism and conservatism. Herding becomes prominent for stocks followed by at least five analysts and towards the long sides of Fama-French sorts, reinforcing its non-spurious and behavioral nature.

Suggested Citation

  • Reveley Callum & Shanaev Savva & Bin Yu & Panta Humnath & Ghimire Binam, 2023. "Analyst herding—whether, why, and when? Two new tests for herding detection in target forecast prices," Economics and Business Review, Sciendo, vol. 9(4), pages 25-55, December.
    • Handle: RePEc:vrs:ecobur:v:9:y:2023:i:4:p:25-55:n:1
    DOI: 10.18559/ebr.2023.4.892
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    References listed on IDEAS

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    Keywords

    ; behavioral finance; financial econometrics; herding; stock analyst;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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