Analyst Forecasts and

Herding Behavior

Brett Trueman

University of California, Berkeley

The use of analyst forecasts as proxies for inves$-$

tors' earnings expectations is commonplace in

empirical researcb. An implicit assumption bebind

their use is that they reflect analysts' private infor$-$

mation in an unbiased manner. As demonstrated

bere, this assumption is not necessarily valid. There

is sbown to be a tendency for analysts to release

forecasts closer to prior earnings expectations

than is appropriate, given their information. Fur$-$

ther, analysts exbibit berding bebavior, whereby

they release forecasts similar to those previously

announced by otber analysts, even when this is

not justified by their information. These results are

sbown to bave interesting empirical implications.

Analyst forecasts have been widely used in empirical

research in both accounting and finance to proxy for

investors' earnings expectations. ${?}^1$ Other empirical

research has focused on comparing analysts' forecast

accuracy to that of both time$-$series and publicly

announced managerial forecasts. ${?}^2$ An implicit

assumption underlying much of this research is that

the forecasts publicly released by analysts reflect their

private information in an unbiased manner. I dem$-$

onstrate that this assumption is not necessarily valid.$($Analyst Forecasts and Herding Behavior Brett Trueman University of California, Berkeley$)$ WHAT IS THE SUMMARY OF THIS ARTICLE?