Do Security Analysts Speak in Two Tongues? / Ulrike Malmendier, Devin Shanthikumar.

By:

Malmendier, Ulrike

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w13124.Publication details: Cambridge, Mass. National Bureau of Economic Research 2007.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: Why do security analysts issue overly positive recommendations? We propose a novel approach to distinguish strategic motives (e.g., generating small-investor purchases and pleasing management) from nonstrategic motives (genuine overoptimism). We argue that nonstrategic distorters tend to issue both positive recommendations and optimistic forecasts, while strategic distorters "speak in two tongues," issuing overly positive recommendations but less optimistic forecasts. We show that the incidence of strategic distortion is large and systematically related to proxies for incentive misalignment. Our "two-tongues metric" reveals strategic distortion beyond those indicators and provides a new tool for detecting incentives to distort that are hard to identify otherwise.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w13124 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w13121 The Small World of Investing: Board Connections and Mutual Fund Returns /	nber w13122 Political Dynasties /	nber w13123 Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Merchantilism /	nber w13124 Do Security Analysts Speak in Two Tongues? /	nber w13125 End-stage Renal Disease and Economic Incentives: The International Study of Health Care Organization and Financing /	nber w13126 Trust and Social Collateral /	nber w13127 The Time and Timing Costs of Market Work /	Next

May 2007.

Why do security analysts issue overly positive recommendations? We propose a novel approach to distinguish strategic motives (e.g., generating small-investor purchases and pleasing management) from nonstrategic motives (genuine overoptimism). We argue that nonstrategic distorters tend to issue both positive recommendations and optimistic forecasts, while strategic distorters "speak in two tongues," issuing overly positive recommendations but less optimistic forecasts. We show that the incidence of strategic distortion is large and systematically related to proxies for incentive misalignment. Our "two-tongues metric" reveals strategic distortion beyond those indicators and provides a new tool for detecting incentives to distort that are hard to identify otherwise.