Abstract
We employ an innovative methodology suggested by Bernhardt et al. (J. Financ. Econ. 80:657–675, 2006) to examine the herding (or anti-herding) behavior of German analysts regarding earnings forecasts. This methodology avoids well-known shortcomings often encountered in related studies, such as correlated information signals, unexpected common shocks to earnings, systematic optimism or pessimism, or forecast target mismeasurement. Our findings suggest that German analysts anti-herd, that is, they systematically issue earnings forecasts that are further away from the consensus forecast than their private information indicates. Furthermore, we analyze the association between herding behavior and different characteristics, including the size of the brokerage, general or firm-specific experience, and the coverage of firms on the Neuer Markt. We mainly confirm findings for the United States, for example, that anti-herding is more severe in cases of higher competition among analysts. Contrary to anecdotal evidence, we also find anti-herding behavior in earnings forecasts for Neuer Markt firms during the “new economy” bubble.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Andres, P., Spiwoks, M.: Prognosequalitätsmatrix—Ein methodologischer Beitrag zur Beurteilung der Güte von Kapitalmarktprognosen. Jahrb. Natl. Stat. 219, 513–542 (1999)
Banerjee, A.V.: A simple model of herd behavior. Q.J. Econ. 107, 797–817 (1992)
Bernhardt, D., Campello, M., Kutsoati, E.: Who herds? J. Financ. Econ. 80, 657–675 (2006)
Bessler, W., Stanzel, M.: Qualität und Effizienz der Gewinnprognosen von Analysten: Eine empirische Untersuchung für den deutschen Kapitalmarkt. Kredit Kap. 40, 1–41 (2007)
Bikhchandani, S., Sharma, S.: Herd behavior in financial markets. IMF Staff Papers 47, 279–310 (2001)
Bikhchandani, S., Hirshleifer, D., Welch, I.: A theory of fads, fashion, custom, and cultural change as informational cascades. J. Polit. Econ. 100, 992–1026 (1992)
Capstaff, J., Paudyal, K., Rees, W.: Analysts’ forecasts of German firms’ earnings: A comparative analysis. J. Int. Financ. Manag. Account. 9, 83–116 (1998)
Chan, L.K.C., Karceski, J., Lakonishok, J.: Analysts’ conflict of interest and biases in earnings forecasts. NBER Working Paper 9544 (2003)
Chen, Q., Jiang, W.: Analysts’ weighting of private and public information. Rev. Financ. Stud. 19, 319–355 (2006)
Clement, M.B., Tse, S.Y.: Financial analyst characteristics and herding behavior in forecasting. J. Finance 60, 307–341 (2005)
Clement, M.B., Rees, L., Swanson, E.P.: The influence of culture and corporate governance on the characteristics that distinguish superior analysts. J. Account. Audit. Finance 18, 593–618 (2003)
Cooper, R.A., Day, T.E., Lewis, C.M.: Following the leader: a study of individual analysts’ earnings forecasts. J. Financ. Econ. 61, 383–416 (2001)
De Bondt, W.F.M., Forbes, W.P.: Herding in analyst earnings forecasts: Evidence from the United Kingdom. Eur. Financ. Manag. 5, 143–163 (1999)
De Bondt, W.F.M., Thaler, R.M.: Do security analysts overreact? Am. Econ. Rev. 80, 52–57 (1990)
Devenow, A., Welch, I.: Rational herding in financial economics. Eur. Econ. Rev. 40, 603–615 (1996)
Easterwood, J.C., Nutt, S.R.: Inefficiency in analysts’ earnings forecasts: Systematic misreaction or systematic optimism? J. Finance 54, 1777–1797 (1999)
Gu, Z., Wu, J.S.: Earnings skewness and analyst forecast bias. J. Account. Econ. 35, 5–29 (2003)
Henze, J.: Was leisten Finanzanalysten? Eine empirische Analyse des deutschen Aktienmarktes. Eul, Lohmar (2004)
Hirshleifer, D., Teoh, S.H.: Herd behaviour and cascading in capital markets: A review and synthesis. Eur. Financ. Manag. 9, 25–66 (2003)
Hong, H., Kubik, J.D., Solomon, A.: Security analysts’ career concerns and herding of earnings forecasts. Rand J. Econ. 31, 121–144 (2000)
Jegadeesh, N., Kim, W.: Do analysts herd? An analysis of recommendations and market reactions. NBER Working Paper 12866 (2007)
Lim, T.: Rationality and analyst’s forecast bias. J. Finance 56, 369–385 (2001)
Löffler, G.: Der Beitrag von Finanzanalysten zur Informationsverarbeitung: Eine empirische Untersuchung für den deutschen Aktienmarkt. Wiesbaden, Deutscher Universitätsverlag (1998)
O’Brien, P.C.: Forecast accuracy of individual analysts in nine industries. J. Account. Res. 28, 286–304 (1990)
Oehler, A.: Do mutual funds specializing in German stocks herd? Financ. Mark. Portf. Manag. 12, 452–465 (1998)
Patton, A.J., Timmermann, A.: Properties of optimal forecasts under asymmetric loss and nonlinearity. J. Econom. 140, 884–918 (2007)
Prendergast, C., Stole, L.: Impetuous youngsters and jaded old-timers: Acquiring a reputation for learning. J. Polit. Econ. 104, 1105–1134 (1996)
Richardson, S., Teoh, S.H., Wysocki, P.D.: The walk-down to beatable analyst forecasts: The role of equity issuance and insider trading incentives. Contemp. Account. Res. 21, 885–924 (2004)
Scharfstein, D.S., Stein, J.C.: Herd behavior and investment. Am. Econ. Rev. 80, 465–479 (1990)
Spiwoks, M.: External Triggered Herding bei Rentenmarkt-Analysten. Financ. Mark. Portf. Manag. 18, 58–83 (2004)
Trueman, B.: Analyst forecasts and herding behavior. Rev. Financ. Stud. 7, 97–124 (1994)
Wallmeier, M.: Analysts’ earnings forecasts for DAX100 firms during the stock market boom of the 1990s. Financ. Mark. Portf. Manag. 19, 131–151 (2005a)
Wallmeier, M.: Gewinnprognosen von Finanzanalysten: Ein europäischer Vergleich. Finanz Betrieb 11, 744–750 (2005b)
Walter, A., Weber, F.M.: Herding in the German mutual fund industry. Eur. Financ. Manag. 12, 375–406 (2006)
Welch, I.: Herding among security analysts. J. Financ. Econ. 58, 369–396 (2000)
Wermers, R.: Mutual fund herding and the impact on stock prices. J. Finance 54, 581–622 (1999)
Zitzewitz, E.: Measuring herding and exaggeration by equity analysts and other opinion sellers. Working Paper (2001)
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Naujoks, M., Aretz, K., Kerl, A.G. et al. Do German security analysts herd?. Financ Mark Portf Manag 23, 3–29 (2009). https://doi.org/10.1007/s11408-008-0093-7
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11408-008-0093-7