Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2001. / "June 2001." / Includes bibliographical references (p. 112-120). / This thesis is a collection of essays on organizational economics and finance-related topics. Firms and individuals who sell opinions may bias their reports for either behavioral or strategic reasons. Chapter 1 proposes a new methodology for measuring these biases, particularly whether opinion producers under or over emphasize their private information, i.e. whether they herd or exaggerate their differences with the consensus. Applying the methodology to I/B/E/S analysts reveals that they do not herd as is often assumed, but rather they exaggerate their differences with the consensus by an average factor of about 2.4. Analysts also overweight their prior-period private information and thus under-update based on last period's forecast error; this under-updating helps explain the apparently conflicting over and under-reaction results of DeBondt and Thaler (1990) and Abarbanell and Bernhard (1992). A useful by-product of the methodology is a measure of the incremental information content of an analyst's forecasts. Using this measure reveals that analysts differ greatly in performance: the information content of the future forecasts of the top 10 percent of analysts is roughly six times that of the bottom 40 percent. / (cont.) Chapter 2 examines whether career concerns can create an incentive for opinion-producing agents to exaggerate. We find that they can, the reason being that high-ability agents have opinions that are more different from the consensus on average and potential clients will learn more quickly about how different an agent's opinions are from the consensus on average that about whether or not they are exaggerating. The model predicts that agents should exaggerate more when they are under-rated by their clients, when the realizations of the variables they are forecasting are expected to be especially noisy, and when they expect to make fewer future forecasts. We find that these predictions are consistent with the empirical data on equity analyst's earnings forecasts. In models by Fershtman and Judd (1987) and Sklivas (1987), firms competing in quantities benefit strategically from commiting to managerial incentives that are biased toward revenue maximization. Little empirical evidence has been produced in support of these models, and their assumption that incentive contracts are observable has been criticized as unrealistic. Chapter 3 proposes an alternative model in which firms competing in strategic substitutes commit to using less precise profit measures, which biases the optimal unobservable contract towards revenue maximization. This model performs better empirically. Firms that compete in strategic substitutes choose less precise profit measures across six different measures, and firms with less precise profit measures in turn have stock returns and thus managerial incentives that are driven ... / by Eric W. Zitzewitz. / Measuring herding and exaggeration by equity analysts -- Opinion-producing agents: career concerns and exaggeration -- A strategic rationale for imperfect profit measures. / Ph.D.
| Identifer | oai:union.ndltd.org:MIT/oai:dspace.mit.edu:1721.1/35487 |
| Date | January 2001 |
| Creators | Zitzewitz, Eric |
| Contributors | Robert S. Gibbons, Nancy L. Rose and Xavier Gabaix., Massachusetts Institute of Technology. Dept. of Economics., Massachusetts Institute of Technology. Dept. of Economics. |
| Publisher | Massachusetts Institute of Technology |
| Source Sets | M.I.T. Theses and Dissertation |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 120 p., 7246084 bytes, 7245895 bytes, application/pdf, application/pdf, application/pdf |
| Rights | M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission., http://dspace.mit.edu/handle/1721.1/7582 |
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