Political Contributions and Analyst Behavior

Political bias influences sell-side analyst forecasting style.

Key Takeaways:

• The political preferences of sell-side equity analysts reveal their personal traits, which can impact their forecasting behavior and information dissemination process.

• The study identifies conservative analysts through their political contributions, and finds that they are more cautious in incorporating new information into their earnings forecasts and stock recommendations.

• Conservative analysts may be more rational and better informed, producing higher quality research that is recognized and rewarded by their employers, institutional investors, and news media.

• However, the market may not fully understand the value of conservative personal traits in equity analysts, as the higher research quality of conservative analysts is not always reflected in market prices.