Behavioral bias in number processing: Evidence from analysts’ expectations
| Autor: | Alain Schatt, Tristan Roger, Patrick Roger |
|---|---|
| Rok vydání: | 2018 |
| Předmět: |
040101 forestry
Logarithmic scale Organizational Behavior and Human Resource Management Economics and Econometrics 050208 finance media_common.quotation_subject 05 social sciences 04 agricultural and veterinary sciences Round number Pessimism 0502 economics and business Econometrics Economics 0401 agriculture forestry and fisheries Positive skewness Profitability index Stock (geology) media_common |
| Zdroj: | Journal of Economic Behavior & Organization. 149:315-331 |
| ISSN: | 0167-2681 |
| DOI: | 10.1016/j.jebo.2018.02.026 |
| Popis: | Research in neuropsychology shows that individuals process small and large numbers differently. Small numbers are processed on a linear scale, while large numbers are processed on a logarithmic scale. In this paper, we show that financial analysts process small prices and large prices differently. When they are optimistic (pessimistic), analysts issue more optimistic (pessimistic) target prices for small price stocks than for large price stocks. Our results are robust when controlling for the usual risk factors such as size, book-to-market, momentum, profitability and investments. They are also robust when we control for firm and analyst characteristics, or for other biases such as the 52-week high bias, the preference for lottery-type stocks and positive skewness, and the analyst tendency to round numbers. Finally, we show that analysts become more optimistic after stock splits. Overall, our results suggest that a deeply-rooted behavioral bias in number processing drives analysts’ return expectations. |
| Databáze: | OpenAIRE |
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