Devin M. Shanthikumar

Graduate School of Business Administration
Harvard Business School
Morgan Hall 377
15 Harvard Way
Boston, MA 02163
Tel: 617/495-6856
Fax: 617/496-7363

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Harvard University

NBER Working Papers and Publications

May 2007Do Security Analysts Speak in Two Tongues?
with Ulrike Malmendier: w13124
Why do security analysts issue overly positive recommendations? We propose a novel approach to distinguish strategic motives (e.g., generating small-investor purchases and pleasing management) from nonstrategic motives (genuine overoptimism). We argue that nonstrategic distorters tend to issue both positive recommendations and optimistic forecasts, while strategic distorters "speak in two tongues," issuing overly positive recommendations but less optimistic forecasts. We show that the incidence of strategic distortion is large and systematically related to proxies for incentive misalignment. Our "two-tongues metric" reveals strategic distortion beyond those indicators and provides a new tool for detecting incentives to distort that are hard to identify otherwise.

Published: Ulrike Malmendier & Devin Shanthikumar, 2014. "Do Security Analysts Speak in Two Tongues?," Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1287-1322. citation courtesy of

October 2004Are Investors Naive About Incentives?
with Ulrike Malmendier: w10812
Traditional economic analysis of markets with asymmetric information assumes that uninformed agents account for the incentives of informed agents to distort information. We analyze whether investors in the stock market internalize such incentives. Stock recommendations of security analysts are likely to be biased upwards, particularly if the issuing analyst is affiliated with the underwriter of the recommended stock. Using the NYSE Trades and Quotations database, we find that large (institutional) traders account for the upward bias and exert no abnormal trade reaction to buy recommendations, and significant selling pressure in response to hold recommendations. Small (individual) traders do not account for the upward shift and exert significantly positive pressure for buys and zero pressur...

Published: Malmendier, Ulrike and Devin Shanthikumar. "Are Small Investors Naïve About Incentives?" Journal of Financial Economics 85, 2 (August 2007): 457-489.

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