Bulls, bears … and mules

Analysts who take overly bullish or bearish positions are more mulish when proven wrong than their less extreme peers, new academic research indicates.

Overoptimistic and overpessimistic analysts tend to dig in their heels after being proven wrong and are less apt to revise their forecasts, according to John Beshears, assistant professor of finance at the Stanford Graduate School of Business, who co-authored the report — “Do Sell-Side Stock Analysts Exhibit Escalation of Commitment?” — with Katherine L. Milkman of the Wharton School of the University of Pennsylvania.

“[Stubbornness] is one mechanism that might allow market bubbles and crashes,” said Mr. Beshears, who noted that the behavior may be the result of analysts’ hoping to justify their decisions, being overcommitted to a previous course of action or having invested time, money and effort into their forecasts and then hoping to recover their costs and vindicate themselves.

The report showed that stubbornness, especially when repeated, did not go unnoticed and that analysts’ tendency to stick to incorrect forecasts was negatively correlated with being recognized for their work.