Working Paper No. 1207

Analysts' Disagreement and Investor Decisions

Published: April 19, 2018Pages: 22Keywords: Strategic Information Transmission; Disagreement; Upward-biased Experts; Commitment Power; Noisy ObservationJEL-codes: G11; G14; G17; D83

Analysts' Disagreement and Investor Decisions Wolfgang Gick and Alex Weissensteiner


Earning forecasts disclosed by financial analysts are known to be overly optimistic. Since an investor relies on their expertise, the question arises whether he would take analyst recommendations at face value or instead structure consultation with differently upward-biased analysts in a way that would permit him to make more accurate investment decisions.

We characterize disagreement in a strategic disclosure game where two analysts disclose to an investor who has commitment power. This setup delivers an explanation of why “de-biasing" occurs naturally when disagreement carries through the disclosure process itself. Our results suggest that consulting more than one analyst permits the investor to make more accurate decisions, even if both analysts overstate their recommendations. We generalize our findings to the case of noisy observation.

Interdisciplinary European Studies

Trust in the European Union in Challenging Times

2018-Trust-in-the-European-Union-by-Oxelheim.jpg

This is the first book in the Interdisciplinary European Studies collection. This volume provides an interdisciplinary perspective on trust in the EU from the vantage point of political science, law and economics. Lars Oxelheim, Lund University and affiliated to IFN, is one of the authors.

Events

Seminars organized by IFN

 

To present ongoing research informal brown-bag seminars are held on Mondays at 11:30 am. This is an opportunity for IFN researchers to test ideas and results.

Academically oriented seminars are most of the time held on Wednesdays at 10 am. At these events researchers from IFN and other institutions present their research.

In addition, IFN organizes seminars open to the public. Topics for these are derived from the IFN research.

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se