Turns out birds of a feather flock together on Wall Street, too: Male stock analysts tend to write more favorably about public companies headed by men than about companies led by women. White analysts favor firms run by white chief executives. And Republicans and Americans in general prefer companies helmed by people like them.
It is called group bias, and four academics have nailed down evidence that it exists among stock analysts, who are paid to guide investors’ bets with hardheaded, rational views of companies’ prospects.
As a result, earnings surprises of firms headed by female, foreign or Democratic CEOs are systematically upward biased, the researchers write in their paper. In other words, because analysts have underestimated the CEOs who don’t belong to their in-group, those CEOs’ companies more often surprise the market when earnings are reported, boosting share prices.
“These results are also reflected in analysts’ buy and sell recommendations, with systematically more buy than sell recommendations for stocks of firms headed by CEOs belonging to their in-group,” says the paper, by Sima Jannati and Alok Kumar at the University of Miami School of Business Administration, Alexandra Niessen-Ruenzi at the University of Mannheim in Germany, and Justin Wolfers at the University of Michigan’s Gerald R. Ford School of Public Policy.
More here – The Wall Street Journal
How bizarre is that! Just another reason why technical analysis strips out another level of bias. We just use the chart, and in 99% of the cases, we don’t have any idea who the CEO is.
Well who would have guessed, analysts can sometimes be biased.
Unconscious bias is certainly coming into our consciousness these days. As for the CEO Louise, sometimes I don’t even know what the companies do let alone the CEO! XD