Analysts and Sentiment: A Causality Study
35 Pages Posted: 17 Jun 2011 Last revised: 5 Feb 2018
Date Written: February 1, 2017
Abstract
We analyze the role that financial analysts play in the sentiment effect on stock prices. Causality analysis reveals that sentiment affects various aspects of the work of analysts. We show that experienced analysts are aware of sentiment, consciously incorporate it, and have some control over its effect. As a result, the effect adheres to the sentiment effect expected in stock prices and actual forecast errors are limited to certain cases. Aanalysts expedite the propagation of sentiment into stock prices and probably enhance the effect by affecting sophisticate investors, but do not initiate or shape it. The new regulations have reduced over-optimism due to sentiment.
Keywords: financial analysts, investor sentiment, market efficiency, behavioral finance
JEL Classification: A12, A14, G10, G14, G02
Suggested Citation: Suggested Citation
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