Blanes i Vidal, Jordi (2003) Credibility and cheap talk of securities analysts: theory and evidence. Discussion paper, 472. Financial Markets Group, London School of Economics and Political Science, London, UK.
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Abstract
This paper studies how investors react to public messages that may be optimistically biased. We first construct a communication game between an investor and a (possibly) biased securities analyst. We find an equilibrium characterised by the following properties: first, the investor reacts more to bad news than to good news, and second, the difference in this reaction is higher when the investor has a greater prior suspicion that the analyst is a biased type. We then use nonparametric techniques and a large database of earnings forecasts to test these predictions, and find that the evidence supports them. Lastly, we use our empirical strategy to discriminate between the causes for analysts’ bias.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.lse.ac.uk |
| Additional Information: | © 2003 The Author |
| Uncontrolled Keywords: | Cheap Talk, Credibility, Securities analysts, Stock market reaction |
| Library of Congress subject classification: | H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C14 - Semiparametric and Nonparametric Methods D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | 472 |
| URL: | http://eprints.lse.ac.uk/24897/ |
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