Date: Mar.5th, 2019

Time: 10:00 a.m.

Venue: Room 702, The Administration Building of Zijingang Campus, Zhejiang University

Speaker: Prof. Wang Renjie

[Speaker Intro]

Wang Renjie is a 5th-year Ph.D. candidate in Finance at the Erasmus School of Economics in Rotterdam, and he will soon join the VU University Amsterdam as Assistant Professor in Finance.He conducts empirical research on the behavior and labor markets of financial agents, and study how they influence market efficiency, managerial decisions, and corporate outcomes.

[Abstract]

 How do analysts form earnings expectations? This paper documents that analysts' beliefs are influenced by the performance of other industries that they cover. I show that negative shocks to one coverage industry lead analysts to make more pessimistic earnings forecasts for firms in another industry. Those pessimistic forecasts are less accurate and lower than the actual earnings. Analysts are affected even if the focal firms have no relationship with the shocked industry. These findings are not in line with information spillovers, but rather consistent with the notion that analysts heuristically overgeneralize bad news from other coverage industries and incorrectly lower their expectations about the focal firms. Moreover, I show that analyst overgeneralization has significant effects on the financial market: the resulting increase in analyst disagreement induces higher trading volumes and larger return volatilities, and the resulting analysts' pessimism leads to temporary underpricing.