Investors' Reliance on Analysts' Stock Recommendations and Mitigating Mechanisms for Potential Overreliance

• 成果类型: Article
• 署名作者: Kelly, Khim; Low, Bernardine; Tan, Hun-Tong; Tan, Seet-Koh
• 署名单位: University of Waterloo; Singapore Management University; Nanyang Technological University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2011.01138.x
• 发表日期: 2012
• 页码: 991-+
• 关键词: INVESTMENT BANKS; INFORMATION; forecasts; incentives

摘要

Regulators express concerns with investors' unquestioning reliance on analysts' recommendations, which prior research has shown to be associated with lower trading returns. Thus, regulators have published guides advising investors to conduct independent research and required analyst firms to disclose their distribution of recommendations in order to alert investors to potential bias in analysts' recommendations. We conducted three experiments to investigate whether and why investors rely on analysts' recommendations, and how to mitigate overreliance on these recommendations. In Experiments 1 and 2, holding all other information constant, investors who received a buy (sell) recommendation judged a company to have higher (lower) investment potential, indicating that regulators' concerns are justified. Further, explicitly warning participants about bias in recommendations and requiring them to form independent recommendations successfully reduced a buy (but not a sell) recommendation's effect on investment judgments. However, Experiment 3 indicated that showing investors an analyst firm's recommendation distribution that is skewed toward buys did not reduce a buy recommendation's effects. Having a distribution was effective only when accompanied by either an explicit warning about possible bias in overly skewed distributions, or a warning plus a requirement to form an independent recommendation. Lastly, we found that the mitigating mechanisms worked by tempering participants' beliefs about the analysts' ability to generate trading interest, expertise in evaluating information, and access to information. Our results suggest that current regulations about distribution disclosures may not sufficiently mitigate investors' overreliance on analysts' optimistic recommendations, and that more explicit warnings are required.