Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts

TLDR

Relatively accurate forecasters are more likely to experience favorable career outcomes like moving up to a high‑status brokerage house. We examine security analysts' career concerns by relating their earnings forecasts to job separations. Controlling for accuracy, analysts who are optimistic relative to the consensus are more likely to experience favorable job separations, and for those covering stocks underwritten by their houses separations depend less on accuracy and more on optimism; during the recent stock market mania separations were less sensitive to accuracy and more to optimism, suggesting brokerage houses reward optimistic analysts who promote stocks.

Abstract

We examine security analysts' career concerns by relating their earnings forecasts to job separations. Relatively accurate forecasters are more likely to experience favorable career outcomes like moving up to a high‐status brokerage house. Controlling for accuracy, analysts who are optimistic relative to the consensus are more likely to experience favorable job separations. For analysts who cover stocks underwritten by their houses, job separations depend less on accuracy and more on optimism. Job separations were less sensitive to accuracy and more sensitive to optimism during the recent stock market mania. Brokerage houses apparently reward optimistic analysts who promote stocks.