Herd behaviour of analysts - status of the current discussion in the literature
Herd behaviour of analysts - status of the current discussion in the literature
Herd behaviour of analysts - status of the current discussion in the literature
Financial analysts play an important role as information intermediaries between potential investors and borrowers on the capital market. Through forecasts, company valuations or buy recommendations, they are significantly involved in the expectation formation and decision-making process of potential investors. However, many studies empirically show systematically exaggerated price or profit expectations. These systematic deviations can be attributed to analysts' conflicts of interest. Due to their intermediary role, they are caught between different interests: On the one hand, investors expect support in the selection of suitable securities; on the other hand, there is the company being evaluated, which provides the analyst with information and thus expects a favourable recommendation. Other players that have an influence on the analyst are the analyst's employer, e.g. investment and analyst firms that expect to receive commission income, as well as other analysts and the business press, which regularly publishes the performance of analysts in the form of rankings. This social embedding means that analysts do not always behave rationally in their forecasts, but are also influenced by other factors.
Research question:
In this context, we will therefore examine which factors influence analysts in their forecasts and, in particular, how the herd behaviour frequently documented in empirical studies comes about. On the one hand, the theoretical background to the behaviour of analysts is to be examined and empirical results discussed.