Capital Markets - News and analysis

Who Leads? Bin Chang, PHD Candidate, University of Toronto, May 2007

Abstract:

"Herding could be caused by the leader-follower relation or independent reactions to common information. This paper is the first to identify whether the leader-follower relation exists in analyst recommendations, i.e., who leads the followers. I develop a measure of leading recommendations and define leaders on past year’s leading records. I find that past leaders, All-American stars, analysts from large brokerage houses, and analysts with less recommendations on a stock are more likely to lead other analysts. The existence of the leader-follower relation is robust when the public information is controlled. In addition, there is a higher market reaction to past leaders and they are less likely to be terminated from jobs."