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Financial analysts with a foreign name grow the mistrust of investors



According to a new study by the London Business School Cass Business School (University of London), the earnings expectations of financial analysts whose family names are indigenous predict stronger market reactions.

The researchers found that, as a result of the terrorist attacks of 11 September, the analysts' predictions, whose names from the Middle East sounded, led to weaker reactions on the market. They also discovered that after the opposition of the French and German governments against the war in Iraq led by the United States, the predictions of analysts with French or German names were less welcome on the American market. This effect was most felt in companies with less institutional ownership, as well as in analysts whose first names did not sound North American.

The survey was conducted with a sample of 5,516 analysts and 6,495 companies from 1996 to 2014. Researchers measured the preference for surnames and used historical immigration records in the United States to identify the countries of origin of surnames. They also used data from the Gallup study on the popularity of foreign countries in the United States.

DrJay Jung, an assistant professor in accounting at the Cass Business School of the City of London, said that this preference for a surname was not associated with the quality of the predictions, such as accuracy, preferences or timelessness, but it suggested that investors make biased judgments based on their perception of the last names of analysts.

"Our findings are consistent with the assumption that people naturally draw conclusions they want.If investors favor an analyst because of his last name, they are motivated to consider the latter's predictions as more credible or of better quality, because this is the unpleasant inconsistency between their actions and their thoughts. "said Dr. Jung.

He said that the preference for a surname had an additional effect on the career opportunities of analysts, enabling them to be more successful in their profession.

"We have found that, provided that you give a good prediction of the results, an analyst was more likely to be chosen as a reputable analyst, if his last name was appreciated, and to survive in that environment, even if his brokerage office went bankrupt or was the subject of a merger acquisitionhe added.

Dr. Jung pointed out that this preference also had an impact on the exchange rate deviation of the stock market.

"The speed with which stock prices reacted to analysts' forecasts was faster when they had a" family name. "The delayed response of prices was drastically reduced."

Dr. Jung stated that the study showed that the perceptions of investors about the name of an analyst not only influence their treatment of financial market information, but also the effectiveness of the market, and had different implications for financial professionals on the labor market.

"It is very interesting how the preference for a surname, irrespective of the content of information or the quality of the prediction of an analyst, influences the reaction of investors and price deviations on the market."

The authors of the study are:

  • Jay Jung, Business School City of London
  • Alok Kumar, University of Miami – School of Business Administration
  • Sonya S. Lim, DePaul University – Department of Finance
  • Choong-Yuel Yoo, KAIST College of Business


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