Local versus foreign analysts' forecast accuracy: does herding matter?

Abstract

The aim of this paper is to compare the information and resource endowments possessed by different analyst types, classified by both location and employment within the context of seven emerging Asian markets. Our results show that local analysts are more accurate than expatriate and global analysts when we consider all earnings forecasts. However, when we control for the segregated herding behaviour of analysts, we find that herding local forecasts are one of the least accurate compared to other herding forecasts. By contrast, bold local (that is, non‐herding local) forecasts are more accurate than all other bold forecasts. This suggests that the information endowment of bold local analysts is superior to the information and resource endowments of bold expatriate analysts. We show that the superior accuracy of bold local forecasts does not stem from business group affiliations, investment banking relationships, demand for local analysts’ services or the specialisation of analysts vis‐à‐vis countries or sectors. We consistently find that bold local analysts are better at assessing the earnings of the firm they forecast. Our results show that the prior documented advantage of local analysts in terms of forecasting accuracy is driven by the bold local analysts, with herding locals diluting this effect. To the best of our knowledge, this is the first study to explore the segregated herding behaviour of local, expatriate and global analysts, and its impact on relative forecast accuracy across analyst types.

Water risk and financial analysts' information environment: Empirical evidence from China

“…Referring to previous research on analysts' information environment (Byard et al, 2011; Choi et al, 2022; Dhaliwal et al, 2012), the following model was established: Specifically, to examine the relationship between water risk and the financial analysts' information environment (H1), we establish Model (5): where FAIE i,t represents the financial analysts’ information environment for company i in year t , which is measured by AFE , DISP , and FOLLOW in year t , respectively. WR i,t‐1 represents the water risk of company i in year t‐1 .…”

“…Referring to previous research on analysts' information environment (Byard et al, 2011;Choi et al, 2022;Dhaliwal et al, 2012), the following model was established: Specifically, to examine the relationship between water risk and the financial analysts' information environment (H1), we establish Model (5):…”

Investors’ Reactions to Alliance‐Engendered Acquisition Ambiguity: Evidence from U.S. Technology Deals

“…We contend that the geographical, national cultural, and institutional differences present in international alliances will exacerbate investors' difficulties in accessing the information encoded in target alliances and diminish their capacity to evaluate them. Consistent with this view, research in finance has shown investors have less access to, and possess less information about, foreign companies' strategies and performance than they do about domestic ones (e.g., Bae et al, 2008;Choi et al, 2022). This is because residing in a country other than that of the foreign company hinders investment research through lack of primary qualitative data on the firm and a lesser understanding than local investors of country-level developments.…”

Brain gain of analysts in China: foreign experiences and forecast accuracy

“…Returnee auditors are likewise associated with better audit quality (Chen et al ., 2017). Despite related studies on the impact of foreign experience on firm performance, CEO compensation and audit quality, exploration of financial sectors or analysts’ forecast behaviour has been limited (Choi et al ., 2021). Therefore, we explore whether and how analysts with foreign experience affect their forecast performance to bridge this gap.…”