Financial Analysts' Herding Behavior in a Fluctuating Macro-economy

Sammanfattning: Financial analysts make forecasts that are either herded or bold. The accuracy of the forecast varies, and could be influenced by economic- and personal matters. The aim of the present study is to analyze herding and relate this behavior to macro-economic factors to add further explanation to existing literature on why analysts herd their earnings forecasts. Firstly, the study shows that analysts increase their herding during unfavorable economic conditions, in terms of GDP growth, due to career concerns. Secondly analysts' forecasts are less accurate during unfavorable economic conditions, in terms of GDP growth, since increased herding leads to decreased accuracy. Thirdly, when the credit risk in the economy increases analysts will rely less on their counterparts and herd less, increasing accuracy. Finally, analysts' behavior and stock returns are related to each other and the study reveals that firms that are followed by, on average, herding forecasters have a significantly higher market return than firms followed by bold forecasters during the forecasting period. In summary, macro-economic factors affect herding behavior.