Independent and Affiliated Analysts: Disciplining and Herding

Journal Article

ABSTRACT The paper investigates strategic interactions between an independent analyst and an affiliated analyst in the context of issuing stock recommendations. Compared to the independent analyst, the affiliated analyst has superior information, but faces a conflict of interest. I show that the independent analyst disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst to improve his recommendation accuracy. Because of the affiliated analyst's conflict of interest, the value the independent analyst expects to derive from his ex post herding option is endogenous and can motivate him to acquire more information up front. As a result, herding and disciplining not only coexist, but also mutually reinforce each other. That is, there is an endogenous complementarity between the independent analyst's ex ante disciplining role and his ex post herding behavior in equilibrium.

Full Text

Duke Authors

Cited Authors

  • Xue, H

Published Date

  • July 1, 2017

Published In

Volume / Issue

  • 92 / 4

Start / End Page

  • 243 - 267

Published By

Electronic International Standard Serial Number (EISSN)

  • 1558-7967

International Standard Serial Number (ISSN)

  • 0001-4826

Digital Object Identifier (DOI)

  • 10.2308/accr-51631


  • en