Behavioral Biases of Analysts and Investors

By David Hirshleifer (University of California Irvine), Harvard Law School Forum on Corporate Governance


JULY 22, 2020

Financial analysts and stock market investors alike are subject to behavioral biases... In a sample of 1,643,089 firm-analyst observations over 1984–2017, we find that an analyst’s first impressions of a firm have a lasting positive association with the analyst’s future forecasts for that firm relative to the consensus forecast. Analysts with positive first impressions also issue higher price targets—predicted levels of stock prices—and are more likely to issue a buy recommendation. The opposite patterns hold for negative first impressions. These first-impression effects persist, on average, for 36 months after the analyst starts to follow a stock.

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