Analysts' Weighting of Private and Public Information
Coauthor(s): Qi Chen.
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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 over-weight) their private information when they forecast
corporate earnings. We also find that analysts over-weight more when issuing forecasts more favorable than
the consensus, and over-weight less, and may even under-weight, 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.
Source: Review of Financial Studies
Jiang, Wei, and Qi Chen. "Analysts' Weighting of Private and Public Information." Review of Financial Studies (forthcoming).