Standing Out from the Crowd: The Real Effects of Outliers

We study the impact of outlier opinions – extreme views voiced by individuals – in financial markets. Using analyst forecasts as a laboratory, we show that market participants respond to the arrival of extremely optimistic forecasts, instead of ignoring them as noise. An outlier forecast subsequently moves group consensus and begets more extreme forecasts by peers. Outlier forecasts also generate stronger market reactions from investors, more media coverage, and more conservative management guidance. Further analyses reveal that issuing outlier forecasts increases an analyst’s chance to cover more important clients of his employer. Outlier forecasts are also more likely to take place when an analyst’s reputation cost is lower and information uncertainty is high. These findings suggest that the propensity for expressing extreme views is situational and that personal incentives are the likely cause at play.