Early career experience and optimism spillover

Abstract

Using a long panel on employment history, I exploit a novel setting to examine if sell-side analysts carry over their early career experience into their future professional careers. I find that analysts' early mentorship experience has a long-lasting impact on their professional styles. Analysts are more optimistic if they work with optimistic mentors in their first jobs as junior analysts: they issue more strong buy recommendations and upgrade jumps, and they are also more optimistic in earnings forecasts and price targets. While it is easy to pick up their mentors' styles, I show that it is apparently harder for them to learn their mentors' skills, as indicated by the lack of spillover in forecast accuracy. Only talented superstar mentors can unwind this pattern, passing their skills and reputation to their proteges. The market—especially sophisticated institutional investors—is smart in identifying the apprentices of optimistic mentors as short-run market reactions to their forecast revisions are weaker. Collectively, these results have important implications for financial economists and regulators (on a new source of optimism), for analyst profession (on talent management and portability), and for market participants (on information dissemination and optimism debias).