TY - UNPB

T1 - Learning about Analysts

AU - Rudiger, Jesper

AU - Vigier, Adrien

PY - 2017

Y1 - 2017

N2 - We examine an analyst with career concerns making cheap talk recommendations to a sequence of traders, each of whom possesses noisy private information concerning the analyst's ability. Each period, the reputation of the analyst is updated based on the recommendation and price developments. An endogeneity problem thus arises, creating opportunities for the bad analyst to manipulate the market. We show that if, by a streak of good luck, the bad analyst builds up her reputation she can then momentarily hide her type. However, the capability of the bad analyst to manipulate the market has limits: in all equilibria the market eventually learns the ability of the analyst. Our results are consistent with several empirical regularities.

AB - We examine an analyst with career concerns making cheap talk recommendations to a sequence of traders, each of whom possesses noisy private information concerning the analyst's ability. Each period, the reputation of the analyst is updated based on the recommendation and price developments. An endogeneity problem thus arises, creating opportunities for the bad analyst to manipulate the market. We show that if, by a streak of good luck, the bad analyst builds up her reputation she can then momentarily hide her type. However, the capability of the bad analyst to manipulate the market has limits: in all equilibria the market eventually learns the ability of the analyst. Our results are consistent with several empirical regularities.

KW - Faculty of Social Sciences

KW - Analysts

KW - Career Concerns

KW - Reputations

KW - Social Learning

M3 - Working paper

T3 - Cowles Foundation Working Paper

BT - Learning about Analysts

ER -