On the 8th of December, Keno Buß (Goethe-Universität Frankfurt) presents his work on "Political Polarization and Analyst Perceptions" in Q4.245.
He looks at how political polarization affects analysist's forecasts. Here is the abstract:
I study how political polarization among information intermediaries shapes consensus
expectations and market reactions. I argue that while ideological diversity can broaden the
range of perspectives, polarization impairs information aggregation by inducing agents to
process information consistent with their political views. Using data on sell-side analysts’
political donations to infer time-variant political leanings, I show that leaning analysts put more
weight on political topics in conference calls and issue earnings forecasts that diverge from the
consensus. At the market level, firms followed by politically polarized analysts exhibit less
accurate consensus forecasts and weaker earnings response coefficients. These results suggest
that polarization within analysts distorts information aggregation and weakens the market’s
ability to incorporate signals into prices.
Keywords: Political Polarization, Analyst Consensus, Information Environment
JEL Classification Code: D83, G14, G41
