Analysts' Disagreement and Investor Decisions

Wolfgang Gick and Alex Weissensteiner
Additional contact information
Alex Weissensteiner: School of Economics and Management, Postal: Free University of Bozen-Bolzano, Italy

No 1207, Working Paper Series from Research Institute of Industrial Economics

Abstract: 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.

Keywords: Strategic Information Transmission; Disagreement; Upward-biased Experts; Commitment Power; Noisy Observation (search for similar items in EconPapers)
JEL-codes: D83 G11 G14 G17 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-04-19
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1207.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1207

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().