Do Security Analysts Speak in Two Tongues?

Ulrike Malmendier and Devin Shanthikumar

No 13124, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Why do security analysts issue overly positive recommendations? We propose a novel approach to distinguish strategic motives (e.g., generating small-investor purchases and pleasing management) from nonstrategic motives (genuine overoptimism). We argue that nonstrategic distorters tend to issue both positive recommendations and optimistic forecasts, while strategic distorters "speak in two tongues," issuing overly positive recommendations but less optimistic forecasts. We show that the incidence of strategic distortion is large and systematically related to proxies for incentive misalignment. Our "two-tongues metric" reveals strategic distortion beyond those indicators and provides a new tool for detecting incentives to distort that are hard to identify otherwise.

JEL-codes: D14 D82 G12 G14 G24 (search for similar items in EconPapers)
Date: 2007-05
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published as Ulrike Malmendier & Devin Shanthikumar, 2014. "Do Security Analysts Speak in Two Tongues?," Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1287-1322.

Downloads: (external link)
http://www.nber.org/papers/w13124.pdf (application/pdf)

Related works:
Journal Article: Do Security Analysts Speak in Two Tongues? (2014)
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:nbr:nberwo:13124

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13124

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).