Bernhardt, Dan, Xiao , Zhijie and Wan, Chi (2016) The reluctant analyst. Journal of Accounting Research, 54 (4). pp. 987-1040. doi:10.1111/1475-679X.12120

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Abstract

We estimate the dynamics of recommendations by financial analysts, uncovering the determinants of inertia in their recommendations. We provide overwhelming evidence that analysts revise recommendations reluctantly, introducing frictions to avoid frequent revisions. More generally, we characterize the sources underlying the infrequent revisions that analysts make. Publicly available data matter far less for explaining recommendation dynamics than do the recommendation frictions and the long-lived information that analysts acquire but the econometrician does not observe. Estimates suggest that analysts structure recommendations strategically to generate a profitable order flow from retail traders. We provide extensive evidence that our model describes how investors believe analysts make recommendations, and that investors value private information revealed by analysts' recommendations.

Item Type:	Journal Article
Subjects:	H Social Sciences > HF Commerce > HF5601 Accounting
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Accounting, Accountants, Quantitative analyst, Econometrics, Markov processes
Journal or Publication Title:	Journal of Accounting Research
Publisher:	Wiley-Blackwell Publishing Ltd.
ISSN:	0021-8456
Official Date:	September 2016
Dates:	Date Event September 2016 Published 30 March 2016 Available 11 March 2016 Accepted
Volume:	54
Number:	4
Page Range:	pp. 987-1040
DOI:	10.1111/1475-679X.12120
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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