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Market sentiment and herding in analysts’ stock recommendations

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  • Chiang, Ming-Ti
  • Lin, Mei-Chen

Abstract

This study examines whether market sentiment affects the herding tendency among analysts. The results indicate that overall analysts tend to herd toward a consensus when issuing recommendations, and this tendency increases with market sentiment. These results are robust with regards to excluding common information and earnings information as well as including reiterations and using a mean consensus measure. Furthermore, the effect of market sentiment on analysts’ herding mainly occurs for recommendations on hard-to-value firms, large firms, as well as firms with high institutional ownership, high book-to-market ratio and low coverage by analysts.

Suggested Citation

  • Chiang, Ming-Ti & Lin, Mei-Chen, 2019. "Market sentiment and herding in analysts’ stock recommendations," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 48-64.
    • Handle: RePEc:eee:ecofin:v:48:y:2019:i:c:p:48-64
    DOI: 10.1016/j.najef.2019.01.007
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    Cited by:

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    3. Wang, Hu & Li, Shouwei & Ma, Yuyin, 2021. "Herding in Open-end Funds: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    4. Xiong Xiong & Chen Wang & Dehua Shen, 2020. "Market Participation Willingness and Investor’s Herding Behavior: Evidence from an Emerging Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(3), pages 439-452, September.
    5. del Río, Cristina & Ferrer, Elena & López-Arceiz, Francisco J., 2024. "Analyst optimism and market sentiment: Evidence from European corporate sustainability reporters," Research in International Business and Finance, Elsevier, vol. 69(C).
    6. Hou, Jianlei & Zhao, Shangmei & Yang, Haijun, 2020. "Individual analysts, stock return synchronicity and information efficiency," International Review of Financial Analysis, Elsevier, vol. 71(C).
    7. John Garcia, 2021. "Analyst herding and firm-level investor sentiment," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(4), pages 461-494, December.
    8. Blajer-Gołębiewska, Anna & Honecker, Lukas & Nowak, Sabina, 2024. "Investor sentiment response to COVID-19 outbreak-related news: A sectoral analysis of US firms," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Analyst; Herding; Stock recommendation; Market sentiment;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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