Premium
Underlying risk preferences and analyst risk‐taking behavior
Author(s) -
Cleary Sean,
Jona Jonathan,
Lee Gladys,
Shemesh Joshua
Publication year - 2020
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12441
Subject(s) - earnings , boldness , predictability , stock (firearms) , actuarial science , investment decisions , business , economics , psychology , finance , behavioral economics , social psychology , personality , mechanical engineering , physics , quantum mechanics , engineering
We investigate the relationship between underlying risk preferences on analysts’ work‐related decisions. Specifically, we examine whether facial width‐to‐height ratio (fWHR), an innate personal characteristic that has been linked to financial risk tolerance, is associated with analysts’ stock coverage decisions and the boldness of their earnings forecasts and stock recommendations. We find that high‐fWHR analysts cover firms with lower earnings predictability, and issue bolder forecasts and recommendations. Our findings shed new light on the black box of analyst decision making, assisting investment practitioners in evaluating the information content produced by different types of analysts and understanding the observed dispersion in analyst forecasts.