Security Analysts' Earnings Forecast Boldness And Accuracy

Security analysts are traditionally considered to be an essential mechanism to solve the agency problems of modern corporation. Security analysts act as information intermediary as they collect and analyze company information and release the information via earnings forecasts and investment recommendations. However, the academy gradually finds that the role of analysts is not neutral in reality. Rather, influence from company management, security firms, analysts themselves and investors are all liable to distort analysts'behavior.Analysts'herding behavior is among the'distortions'of behavior. This paper uses data of Chinese stock market spanning from 2004 to 2009 and examines the herding behavior of analysts'earnings forecasts (measured by earnings forecast boldness). The three main issues this paper tries to address is, firstly, what is the general picture of herding of Chinese stock analysts; secondly, what are the driving factors of analysts'herding behavior; lastly, how will analysts'herding behavior affects its influence on earnings forecasts accuracy.This paper finds that empirically, analysts'herding behavior is mainly driven by market atmosphere, forecast horizon, forecast timeliness, which is consistent with findings in US markets. But this paper fails to find the positive correlation between analysts'reputation and forecast boldness, which contradicts findings in the US market. Furthermore, the paper also finds the positive relationship between analysts'herding behavior and forecast accuracy, which contradicts findings in the US market.