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RFS Advance Access originally published online on October 28, 2005
Review of Financial Studies 2006 19(1):319-355; doi:10.1093/rfs/hhj007
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Right arrow D82 - Asymmetric and Private Information
Right arrow G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies
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© The Author 2005. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Analysts’ Weighting of Private and Public Information

Qi Chen
Fuqua School of Business, Duke University

Wei Jiang
Columbia Business School

Address correspondence to: Qi Chen, Fuqua School of Business, Duke University, Durham, NC 27708, USA, e-mail: qc2{at}duke.edu

Wei Jiang, Columbia Business School, 3022 Broadway, New York, NY 10027, USA, e-mail: wj2006{at}columbia.edu.

Using both a linear regression method and a probability-based method, we find that on average, analysts place larger than efficient weights on (i.e., they overweight) their private information when they forecast corporate earnings. We also find that analysts overweight more when issuing forecasts more favorable than the consensus, and overweight less, and may even underweight, private information when issuing forecasts less favorable than the consensus. Further, the deviation from efficient weighting increases when the benefits from doing so are high or when the costs of doing so are low. These results suggest that analysts’ incentives play a larger role in misweighting than their behavioral biases.


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