Accounting and Finance PhD Research Seminar – Yujin Gu
Title: How Trust Influences Investors’ Responses to Analysts’ Forecasts
Date:Â 13 December 2023
Time: 11:30-12:30
Location: FDC.1.16
If you would like to attend, please register using the following link:
How Trust Influences Investors’ Responses to Analysts’ Forecasts
Speaker: Yujin Gu, NUBS PhD Student
Abstract:
We study the relationship between societal trust and investors’ reactions to analysts’ earnings forecasts. Using an international sample of earnings forecasts from 45 countries, we find that both abnormal stock return variance and trading volume are significantly higher in more trusting countries. Additionally, we document that the positive effect of trust is more pronounced when the forecast comes from rookie analysts, those from smaller brokerage houses, or those not perceived as local. However, the effect of trust diminishes in markets with higher disclosure requirements and stronger investor or creditor protections, consistent with prior literature suggesting a substitutional relationship between trust and regulation. Finally, we simulate investors’ performance in different markets by constructing buy and sell portfolios. While investors in high-trust countries often benefit from high short-term market reactions, they are more likely to face notable return reversals over extended periods. Conversely, investors in low-trust markets tend to underreact to forecast signals initially, leading to a prolonged post-announcement drift.