The Influence of Analyst and Management Forecasts on Investor Decision Making: An Experimental Approach

Analyst and management forecasts signal a firm's future prospects, and research suggests that investors are conscious of the differing incentives to release news. We examine investor reaction to the information contained in these forecasts by considering whether decisions about their shareholdings are influenced by expectations about the motives of analysts and management. Using an experiment that manipulated the type of news released and investors' stock position, we found that unfavourable forecasts had a greater effect than favourable forecasts. Investors also place more emphasis on the news released by analysts, suggesting that information from an independent source appears to be more persuasive.