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Rev Fin 1994; 7:97-124
© 1994 the Society for Financial Studies

Article

Analyst forecasts and herding behavior

B Trueman
Haas School of Business, University of California, Berkeley, CA 94720, USA

Abstract

The use of analyst forecasts as proxies for investors' earnings expectations is commonplace in empirical research. An implicit assumption behind their use is that they reflect analysts' private information in an unbiased manner. As demonstrated here, this assumption is not necessarily valid. There is shown to be a tendency for analysts to release forecasts closer to prior earnings expectations than is appropriate, given their information. Further, analysts exhibit herding behavior, whereby they release forecasts similar to those previously announced by other analysts, even when this is not justified by their information. These results are shown to have interesting empirical implications.


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