Confirmation Bias in Analysts’ Response to Consensus Forecasts
2020 CIRF & CFRI Joint Conference
49 Pages Posted: 2 Nov 2020
Date Written: August 10, 2020
This paper provides evidence of confirmation bias by sell-side analysts in their earnings forecasts. We show that analysts tend to put higher weight on public information when the current forecast consensus is more consistent with their previous forecasts. Our results further suggest that the effect of confirmation bias on analyst forecasts is distinct from that of conservatism, self-attribution bias, or overconfidence. We find that analysts with better forecasting performance, shorter experience following a firm, providing earlier forecasts, or facing more dispersion in peer forecasts, tend to be less subject to confirmation bias, consistent with existing cognitive and social psychology theories.
Keywords: Confirmation Bias, Analyst Earnings Forecasts, Weighting Inefficiency, Behavioral Finance
JEL Classification: G02, G2
Suggested Citation: Suggested Citation