Forecast Dispersion Following ADR Listings: Does U.S. Trading Promote Herding?

Abstract

This abstract was created post-production by the JFI Editorial Board.

This paper provides evidence that the dispersion of analyst earnings forecasts is the same for new and continuing analysts in a sample of ADR listing firms. I conclude that ADR listing does not change the informational environment of the listing firms via the analyst forecasting process. This research provides a starting point for the study of herding behavior among analysts across countries. The listing of an ADR should bring more attention to a firm as it begins to trade in the U.S. market. While the ADR listing did coincide with new analysts beginning to cover many firms (N = 78 in the entire sample), the new and continuing analysts did not differ with respect to their forecast dispersion. This is not consistent with the idea that there is a learning curve for analysts as they choose to cover new firms. Rather, the new analysts seem to behave similar to their predecessors. This is unfortunate, as one would hope that the new analysts would bring new ideas to light, especially since these are foreign firms beginning to trade in a U.S. market, so presumably the new analysts are largely U.S.-based.