Publication Type

Journal Article

Version

submittedVersion

Publication Date

11-2025

Abstract

Local-thinking bias, wherein agents overweight information that comes readily to mind, is a prominent finding in cognitive psychology. In this study, we investigate local-thinking bias in the context of sell-side analysts and measure each analyst’s “local” information as news stemming from their individual coverage portfolio. Tests examining multiple analysts forecasting on the same focal firm at the same time find that individual analysts overweight idiosyncratic local news and underweight news from economically linked firms that are not in their coverage portfolios. Market prices track the analyst bias from local news, leading to predictable and economically significant return reversal patterns in the future. A trading strategy that adjusts for analysts’ biases earns meaningful abnormal returns. We discuss the implications of these findings for three literatures: (a) cognitive psychology, (b) analyst behavior, and (c) behavioral asset pricing.

Keywords

overreactions, cognitive biases, analyst forecasts, stock pricing

Discipline

Accounting | Finance and Financial Management

Research Areas

Corporate Reporting and Disclosure

Publication

Accounting Review

Volume

100

Issue

6

First Page

87

Last Page

112

ISSN

0001-4826

Identifier

10.2308/TAR-2024-0453

Publisher

American Accounting Association

Additional URL

https://doi.org/10.2308/TAR-2024-0453

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