Analyst Herding and Optimism: Evidence from Twelve Asia-Pacific Markets

Abstract

This paper presents an empirical analysis of analyst herding and optimism phenomena in twelve Asia-Pacific markets. The sample contains 17 years of 224,841 observations from 1988 to 2003. The twelve Asia-Pacific countries are Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia,New Zealand, Philippines, Singapore, Taiwan, and Thailand. The empirical findings suggest that analyst optimism is widespread across Asia-Pacific markets. Systematic herding behavior of analysts is observed as analysts forecast earnings farther out into the future. A bivariate regression analysis indicates that when analysts are more inclined to the herd, they tend to issue less optimistic forecasts. The multiple regression shows that analyst herding tends to strengthen as analyst coverage and forecast horizon increase. In general, evidence in this paper supports the findings in the existing US and European studies, and suggests world-wide phenomena of analyst optimism and herding behavior. The herding behavior of analysts seems to be a major component of analyst optimism.