Publication Type

Journal Article

Publication Date

9-2008

Abstract

We find that local analyst recommendations are systematically more optimistic than foreign analyst recommendations in emerging markets. The effects of this novel home bias among local analysts overwhelm any information asymmetry between foreign and local analysts. Consequently, local analyst upgrades underperform foreign analyst upgrades, while local analyst downgrades outperform foreign analyst downgrades. Neither foreign investors, local institutions, nor retail investors appear to be fully cognizant of this bias. Trade reactions suggest that foreign investors overestimate the bias in foreign analyst recommendations while local institutions underestimate the bias in local analyst recommendations. These results are pervasive across countries, time periods, and stock groupings, and can be traced to investment banking pressure.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Areas of Excellence

Finance and Financial Markets

Publication

Journal of Financial and Quantitative Analysis

Volume

43

Issue

3

First Page

685

Last Page

716

ISSN

0022-1090

Identifier

10.1017/S0022109000004257

Publisher

Cambridge University Press

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.1017/S0022109000004257

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