First Impression Bias: Evidence from Analyst Forecasts*

Biased beliefs, asset prices, and investment: a structural approach

David Hirshleifer, Ben Lourie, Thomas Ruchti and Phong Truong

Review of Finance, 2021, vol. 25, issue 2, 325-364

Abstract: We present evidence of first impression bias among finance professionals in the field. Equity analysts’ forecasts, target prices, and recommendations suffer from first impression bias. If a firm performs particularly well (poorly) in the year before an analyst follows it, that analyst tends to issue optimistic (pessimistic) evaluations. Consistent with negativity bias, we find that negative first impressions have a stronger effect than positive ones. The market adjusts for analyst first impression bias with a lag. Finally, our findings contribute to the literature on experience effects. We show that a set of professionals in the field, equity analysts, apply U-shaped weights to their sequence of past experiences, with greater weight on first experiences and recent experiences than on intermediate ones.

Keywords: First impressions; Equity analysts; Behavioral finance (search for similar items in EconPapers)
JEL-codes: D91 G14 G24 G41 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfaa015 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:revfin:v:25:y:2021:i:2:p:325-364.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().