Business Publications

Title

A Simultaneous Equations Analysis of Analysts’ Forecast Bias and Institutional Ownership

Document Type

Article

Publication Date

8-2003

Journal

Journal of Business Finance and Accounting

Volume

30

Issue

7-8

First Page

1017

URL with Digital Object Identifier

https://doi.org/10.1111/1468-5957.05452

Last Page

1042

Abstract

In this paper we use a simultaneous equations model to examine the relationship between analysts’ forecasting decisions and institutions’ investment decisions. Neglecting their interaction results in model misspecification. We find that analysts’ optimism concerning a firm’s earnings responds positively to changes in the number of institutions holding the firm’s stock. At the same time, institutional demand responds positively to increases in analysts’ optimism. We also investigate several firm characteristics as determinants of analysts’ and institutions’ decisions. Empirical estimates of the effects of these characteristics indicate that agency-driven behavioral considerations are significant.

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