Biased Analyst Recommendations

The primary role of financial analysts should be to provide investors with information about the future prospects of securities, in most cases shares in companies. Such information is often provided in the form of forecasts on the future price of the shares or, equivalently, of returns, commonly with reference to a benchmark such as a market index. When providing this forecast, financial analysts have to rely on information they have obtained from a wide range of sources. While financial analysts will make use of publicly available information, such as annual and quarterly reports, along with filings made with regulatory authority to disclose information, they will also use their knowledge of the industry and competitor companies. In addition, financial analysts maintain contacts with senior management in the company they cover. While regulation commonly requires information to be disclosed publicly, such personal contacts can and are used to ascertain the impact any disclosed information might have on the company or its competitors, likely reactions of the management to mitigate any adverse effects or exploitation of new opportunities. Such, often informal, contacts can add to the precision of information that financial analysts hold.