Herding Behavior in Forecasting of European Companies: Optimism and the Impact of the MiFID

Sammanfattning: This thesis examines analysts' earnings per share forecast revisions for European companies and classifies them as either herding or bold. We further classify bold forecasts as optimistic or pessimistic. We find (i) optimistic boldness to be negatively associated with firm-specific characteristics such as leverage and stock return volatility, (ii) herding forecasts to be less accurate compared to bold (non-herding) forecasts, (iii) optimistic bold forecasts to be more accurate than pessimistic bold forecasts, and (iv) that optimistic bold forecasts have become less accurate relative to pessimistic bold forecasts following the implementation of MiFID. This study examines the firm-specific dimension of herding behavior and suggests that (optimistic) bold forecasts incorporate a higher degree of relevant private information, thus providing evidence that evaluating the impairment on analyst signaling due to herding behavior is relevant to consider for European investors. Lastly, this study assesses the impact of heightened regulation on analyst behavior in EU member states.