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Research finds investors dismiss analysis from those who have less favourable surnames
Financial analysts whose surnames are perceived as favourable elicit stronger market
reactions to their earnings forecasts, new research from Cass Business School has found.
The researchers found that following the 9/11 terrorist attacks, market reactions weakened
for forecasts from analysts with Middle Eastern surnames. They also found that following the
French and German governments’ opposition to the US-led Iraq War, the US market
reactions weakened for analysts with French or German surnames. This effect was stronger
in firms with lower institutional ownership and for analysts with non-American first names.
The researchers measured surname favourability using the US historical immigration
records to identify countries of origin associated with a particular surname and the Gallup
survey data on Americans’ favourability toward foreign countries.
Dr Jay Jung, assistant professor of accounting at Cass Business School, said surname
favourability was not associated with forecast quality such as accuracy, bias, and timeliness
but rather it suggested the investors made biased judgements based on their perception of
analysts’ surnames.
“Our finding is consistent with the prediction based on motivated reasoning that people have
a natural desire to draw conclusions that they are motivated to reach. If investors have
favourable views toward an analyst due to his or her surname, they are motivated to assess
the analyst’s forecasts as being more credible or of higher quality because it reduces the
unpleasant inconsistency between their attitudes and judgments,” said Dr Jung.
Dr Jung said surname favourability did have a complementary effect on analysts’ career
outcomes, helping analysts prosper in their profession.
“We found that, conditional on good forecasting performance, having a favourable surname
made it more likely for an analyst to get elected as an All-Star analyst and survive in the
profession when his or her brokerage house went out of business or went through a M&A
(mergers and acquisition) process,” he adds.
Dr Jung said surname favourability also had impact on price drifts in the stock market.
“The speed at which stock prices reacted to an analyst’s forecasts was faster when the
analyst had a favourable surname. We found significantly smaller delayed price responses.”
Dr Jung said the research demonstrated that investors’ perception of an analyst’ surname
not only influences their information processing in capital markets but also affects market
efficiency and leads to different labour market consequences for finance professionals.
“It is quite interesting to see how the favorability of a surname, unrelated to the information
content or quality of an analyst’s forecast, influences investor reaction and price anomalies
in the capital market.”
Read the paper
The research paper ‘An Analyst by Any Other Surname: Surname Favorability and Market
Reaction to Analyst Forecasts’ is conditionally accepted for publication in the Journal of
Accounting and Economics. Read the paper here.
The authors are:
- Jay Jung, Cass Business School
- 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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