We report complex phenomena arising among financial analysts, who gather information and generate investment advice, and elucidate them with the help of a theoretical model. Understanding how analysts form their forecasts is important in better understanding the financial market. Carrying out big-data analysis of the analyst forecast data from I/B/E/S for nearly thirty years, we find skew distributions as evidence for emergence of complexity, and show how information asymmetry or disparity affects financial analysts' forming their forecasts. Here regulations, information dissemination throughout a fiscal year, and interactions among financial analysts are regarded as the proxy for a lower level of information disparity. It is found that financial analysts with better access to information display contrasting behaviors: a few analysts become bolder and issue forecasts independent of other forecasts while the majority of analysts issue more accurate forecasts and flock to each other. Main body of our sample of optimistic forecasts fits a log-normal distribution, with the tail displaying a power law. Based on the Yule process, we propose a model for the dynamics of issuing forecasts, incorporating interactions between analysts. Explaining nicely empirical data on analyst forecasts, this provides an appealing instance of understanding social phenomena in the perspective of complex systems.
Bibliographical noteFunding Information:
This work was supported by Korea Institute of Science and Technology (Economic and Social Science Research Initiative (ESRI) 2E27022 and Future Convergence 2E26940) (C.K.), by Bridge Trust Asset Management Research Fund (D.S.K. and K.A.), and by National Research Foundation of Korea (Grant No. 2016R1D1A1A09917318) (M.Y.C.). C.K. is in Economic & Social Science Research Initiative, Materials and Life Science Research Division, Korea Institute of Science and Technology.
© 2017 Kim et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
All Science Journal Classification (ASJC) codes
- Biochemistry, Genetics and Molecular Biology(all)
- Agricultural and Biological Sciences(all)