Diversity, Information Choice, and Aggregate Market Outcomes

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2022
Authors
Zhang, Shiyi
Kumar, Alok
Chhaochharia, Vidhi
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This study examines whether racial/ethnic diversity among market participants is associated with diverse information environments and better aggregation of information. Using measures of diversity among sell-side equity analysts, we demonstrate that although minority analyst forecasts are less accurate, their forecasts are more consistent, and they employ richer information sets. At the aggregate level, earnings are more predictable when the consensus is based on a larger proportion of minority forecasts. The predictive ability of minority analysts is stronger when corporate boards are more diverse, and market uncertainty is high. Further, the stock market reaction following an earnings announcement is stronger when the consensus uses inputs from more diverse analysts. Collectively, these results suggest that greater diversity among equity analysts is associated with better information environments and more efficient stock prices.
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Equity analysts, racial/ethnic diversity, information heterogeneity, earnings predictability, market uncertainty
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