Surname influence investor reaction and price anomalies in the capital market

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Investors and financial advisors may be influenced by an unusual element of a stock market forecast – the analyst’s name.

That’s the finding of a new study by researchers at the Cass Business School in London which discovered that a more favourable surname elicited stronger market reactions to earnings forecasts.

"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, explained Dr Jay Jung, assistant professor of accounting at Cass Business School.

“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," he added.

The study found that, following the 9/11 terrorist attacks in New York, analysts with Middle Eastern surnames generated lower market reactions; the same was true of those with German or French surnames following Iraq War opposition from German and French governments.

Faster reaction

Dr Yung said that surname favourability also means faster market reactions to forecasts.

"It is quite interesting to see how the favourability 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," he said.

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.