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The effect of experience, independence, and psychology on analysts’ propensity to use their own earnings forecasts in stock recommendations
Bin Ke,
Penn State University
Yong Yu, University of Texas at Austin
ABSTRACT. Bradshaw (2004) finds that analysts’ consensus stock recommendations do not fully reflect the private information in the consensus earnings forecasts. This paper examines the economic factors that affect analysts’ propensity to use their own earnings forecasts in stock recommendations. Stock recommendations issued by analysts who have a short history of following a stock, work for investment banks, and follow firms that have experienced significant equity offerings or significant insider sales by officers and directors are less likely to incorporate their own earnings forecasts that are useful in predicting future abnormal stock returns. The efficiency in analysts’ use of earnings forecasts in stock recommendations is also affected by psychological biases.
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