Macroeconomic uncertainty and sell-side analyst bias in the brazilian market

Abstract

This paper seeks to investigate the existence of optimistic bias in stock price projections made by sell-side analysts and to analyse whether such behaviour is conditional on variables related to uncertainties and macroeconomic conditions. To this end, this paper analyses 3,608 price forecasts and recommendation from 348 analysts on 26 shares traded in the Brazilian market. The results confirm the positive bias in the forecast, but mainly show that this phenomenon occurs systematically over the periods, among the various specialized entities that elaborate the analyses and recommendations and is reflected in almost all of the companies under analysis. Additionally, the results indicate that the optimistic profile of analysts is not homogeneous and stable per se over the periods, since such behaviour varies due to the macroeconomic scenario related to market and economic uncertainties. Thus, the results suggest a significant negative relationship between uncertainty and analyst bias, suggesting that periods of lower uncertainty analysts tend to be more optimistic than average and in periods of greater uncertainty analysts tend to be more conservative or even pessimistic. The study contributes to the literature by explaining structural elements that determine projection biases.