Sell-side analyst reports and decision-maker reactions: Role of heuristics

It is well known that heuristics affect people’s judgment within virtually every setting. We find that heuristics exert a strong and positive influence on the sell-side analyst writing process (broadly referred to as the “judgment process”) and that the interaction between detail (as defined) and overconfidence and between detail and tone strongly influence the sell-side analyst judgment process. We also find that decision-makers respond to these attributes. We assess how recommendations in sell-side analysts’ reports trigger decision-makers to trade by measuring trade volume. We apply canonical corrections to support our findings, as we believe that an individual’s judgment process is based on a set of outcome variables. Although the explanatory power of our results may seem low, they enhance our understanding of how sell-side analysts process soft and hard information.