Learning to Forecast

• In Event: Financial Analysts I

Abstract

Using a long panel on employment history of sell-side analysts, I exploit a novel setting to examine the influence of early career mentors on analysts’ subsequent forecasting performance. This paper shows that it is easier for analysts to learn their mentors’ forecast bias (i.e., styles) but apparently harder to learn their forecast accuracy (i.e., skills). However, the proteges of all-star mentors do show significantly higher earnings forecast accuracy but only in those firms that were previously covered by their mentors. Further, this accuracy attenuates when the Regulation Fair Disclosure comes into force, suggesting that this success is primarily driven by their mentors’ connections to firm management. Additional analyses show that sophisticated institutional investors are aware of these social ties, as they react more weakly to the forecast revisions by the proteges of optimistic mentors.

Author

• Kelvin Law, Tilburg University