Review of Finance Vol. 25 No. 2 2021

First Impression Bias: Evidence from Analyst Forecasts

David Hirshleifer¹; Ben Lourie¹; Thomas Ruchti²; Phong Truong³

¹ Paul Merage School of Business, University of California , Irvine · ² Tepper School of Business, Carnegie Mellon University , · ³ Smeal College of Business, Pennsylvania State University

Abstract

We present evidence of first impression bias among finance professionals in the field. Equity analysts’ forecasts, target prices, and recommendations suffer from first impression bias. If a firm performs particularly well (poorly) in the year before an analyst follows it, that analyst tends to issue optimistic (pessimistic) evaluations. Consistent with negativity bias, we find that negative first impressions have a stronger effect than positive ones. The market adjusts for analyst first impression bias with a lag. Finally, our findings contribute to the literature on experience effects. We show that a set of professionals in the field, equity analysts, apply U-shaped weights to their sequence of past experiences, with greater weight on first experiences and recent experiences than on intermediate ones.

DOI

10.1093/rof/rfaa015

Volume

25

Issue

2

Pages

325-364

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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