An Analyst by Any Other Last Name: Country Favorability and Market Reaction to Analyst Forecasts

Abstract

This paper investigates whether subjective perception such as favorability influences market reactions to analyst earnings forecast revisions. Using the Gallup poll on Americans’ overall opinion about foreign countries, we find that analysts with last names associated with more favorable countries of origin elicit stronger market responses to their forecast revisions. The findings are more pronounced when firms are largely held by individual investors and when analysts have last names whose origins are easier to infer. Following the 9/11 terrorist attacks, analysts with Middle Eastern origins suffer a significant decline in market responses to their forecast revisions. Further, we find no systematic relation between forecast quality and favorability of analysts’ countries of origin, suggesting that our finding is unlikely to be driven by rational weighting based on forecast quality. We also find no evidence that analysts with more favorable countries of origin have better career outcomes. Taken together, our findings suggest that investors’ subjective feeling about an analyst can influence how they process the information in the analyst forecasts.