Investors' Uncertainty Judgments and Perceptions about Analyst Herding: The Joint Influence of the Preference-Consistency and Temporal Order of Analyst Forecasts

• In Event: Accounting Behavior & Organization and Management Accounting

Abstract

While prior research documents that analysts sometimes herd their forecasts, very few studies investigate how investors’ judgments are influenced by their perceptions about the likelihood of analyst herding. I conduct an experimental study to investigate conditions under which investors’ assessments of uncertainty about future earnings are influenced by their perceptions about the likelihood of analyst herding. As expected, and consistent with motivated reasoning, results show that temporal order influence investors’ estimates of the likelihood of analyst herding and investors’ uncertainty judgments when analyst forecasts are preference-inconsistent, but not when analyst forecasts are preference-consistent. My study provides a potential explanation for the mixed findings documented in prior research about investors’ reactions to the likelihood of analyst herding. In addition, my study extends research on investors’ credulity by suggesting that motivated reasoning and skepticism can be one mechanism that contributes to that credulity.

Author

• Walied Keshk, California State University, Fullerton