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Herding Behavior among Financial Analysts: a literature review

Author

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  • Van Campenhout, Geert

    () (Hogeschool-Universiteit Brussel (HUB), Belgium)

  • Verhestraeten, Jan-Francies

Abstract

Analysts' forecasts are often used as an information source by other investors, and therefore deviations from optimal forecasts are troublesome. Herding, which refers to imitation behavior as a consequence of individual considerations, can lead to such suboptimal forecasts and is therefore widely studied. In this paper we provide a concise literature review of herding behavior among financial analysts. We discuss the concept of herding and review its occurrence & consequences, as well as its motives and determinants. We conclude with some suggestions for further research.

Suggested Citation

  • Van Campenhout, Geert & Verhestraeten, Jan-Francies, 2010. "Herding Behavior among Financial Analysts: a literature review," Working Papers 2010/39, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  • Handle: RePEc:hub:wpecon:201039
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    References listed on IDEAS

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    1. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 389-432.
    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. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Zitzewitz, Eric, 2001. "Measuring Herding and Exaggeration by Equity Analysts and Other Opinion Sellers," Research Papers 1802, Stanford University, Graduate School of Business.
    5. Qi Chen & Wei Jiang, 2006. "Analysts' Weighting of Private and Public Information," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 319-355.
    6. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    7. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
    8. Trueman, Brett, 1994. "Analyst Forecasts and Herding Behavior," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 97-124.
    9. Robert J. Shiller, 1987. "Investor Behavior in the October 1987 Stock Market Crash: Survey Evidence," NBER Working Papers 2446, National Bureau of Economic Research, Inc.
    10. Bernhardt, Dan & Campello, Murillo & Kutsoati, Edward, 2006. "Who herds?," Journal of Financial Economics, Elsevier, vol. 80(3), pages 657-675, June.
    11. Michael B. Clement & Senyo Y. Tse, 2005. "Financial Analyst Characteristics and Herding Behavior in Forecasting," Journal of Finance, American Finance Association, vol. 60(1), pages 307-341, February.
    12. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
    13. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
    14. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-1134, December.
    15. Werner F. M. De Bondt & William P. Forbes*, 1999. "Herding in analyst earnings forecasts: evidence from the United Kingdom," European Financial Management, European Financial Management Association, vol. 5(2), pages 143-163.
    16. John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, February.
    17. Harrison Hong & Jeffrey D. Kubik & Amit Solomon, 2000. "Security Analysts' Career Concerns and Herding of Earnings Forecasts," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 121-144, Spring.
    18. repec:bla:joares:v:28:y:1990:i:2:p:409-417 is not listed on IDEAS
    19. Ciccone, Stephen J., 2005. "Trends in analyst earnings forecast properties," International Review of Financial Analysis, Elsevier, vol. 14(1), pages 1-22.
    20. Friesen, Geoffrey & Weller, Paul A., 2006. "Quantifying cognitive biases in analyst earnings forecasts," Journal of Financial Markets, Elsevier, vol. 9(4), pages 333-365, November.
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    Cited by:

    1. Pop, Raluca Elena, 2012. "Herd behavior towards the market index: evidence from Romanian stock exchange," MPRA Paper 51595, University Library of Munich, Germany.
    2. Bizer, Kilian & Meub, Lukas & Proeger, Till & Spiwoks, Markus, 2014. "Strategic coordination in forecasting: An experimental study," Center for European, Governance and Economic Development Research Discussion Papers 195, University of Goettingen, Department of Economics.

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