Peer effects in professional analysts' choice of their portfolio of companies

Analysts' earnings forecasts are well known to be affected by herding behavior. This article provides evidence that herding might also play a role in analysts' choice of coverage portfolio. Using the I/B/E/S database we show that there are strong peer effects at work in analysts' choice of their portfolio of companies that go beyond specialization in teams and for certain sectors. To identify the factors driving these findings, we adopt a model of link formation within the bipartite network defined by analyst-company pairs. The strongest influence on imitation comes from the performance of other analysts. In contrast, professional experience and other individual characteristics seem to exert only a minor influence.