Learning about Analysts
Publikation: Working paper › Forskning
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.
|Status||Udgivet - 2017|
|Navn||Cowles Foundation Working Paper|
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