Which Analysts Lead the Herd in Stock Recommendations?

Abstract

This article identifies a leader–follower relationship in stock recommendations and documents the characteristics of lead analysts. We develop a metric for identifying lead analysts based on the observation that lead analysts have directed a “path” for the consensus in the past year. We find that recommendations are more likely to direct a path for the consensus when they are issued by lead analysts, accompanied by concurrent earnings forecast in the same direction from the same analysts, away from the consensus, followed by price momentum, issued on large and high growth firms, and issued by analysts from large brokers with less frequent recommendations. This result still holds even after controlling for public information, excluding news announcement dates, Regulation Fair Disclosure legislation, and other robustness checks. Empirical analysis shows that there is a greater market reaction to the recommendations of lead analysts than others.