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Calculators, Lemmings or Frame-Makers? The Intermediary Role of Securities Analysts

Calculators, Lemmings or Frame-Makers? The Intermediary Role of Securities Analysts Calculators, lemmings or frame-makers? The intermediary role of securities analysts Daniel Beunza and Raghu Garud Introduction As Wall Street specialists in valuation, sell-side securities analysts constitute a particularly important class of market actor. Analysts produce the reports, recommendations and price targets that professional investors utilize to inform their buy and sell decisions, which means that understanding analysts’ work can provide crucial insights on the determinants of value in the capital markets. Yet our knowledge of analysts is limited by insufficient attention to Knight- ian uncertainty. Analysts estimate the value of stocks by calculating their net present value or by folding the future back into the present. In so doing, they are faced with the fundamental challenge identified by Frank Knight, that is, with the difficulty of making decisions that entail a future that is unknown. These decisions, as Knight wrote, are characterized by ‘neither entire ignorance nor complete...information, but partial knowledge’ of the world (Knight, [1921] 1971: 199). The finance literature has not examined the Knightian challenge faced by analysts. Indeed, existing treatments circumvent the problem by adopting one of two extreme positions. In the first, put forward by orthodox economists, it is assumed that Knightian uncertainty is non-existent http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Sociological Review SAGE

Calculators, Lemmings or Frame-Makers? The Intermediary Role of Securities Analysts

The Sociological Review , Volume 55 (2_suppl): 27 – Oct 1, 2007

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References (78)

Publisher
SAGE
Copyright
© 2007 The Editorial Board of the Sociological Review
ISSN
0038-0261
eISSN
1467-954X
DOI
10.1111/j.1467-954X.2007.00728.x
Publisher site
See Article on Publisher Site

Abstract

Calculators, lemmings or frame-makers? The intermediary role of securities analysts Daniel Beunza and Raghu Garud Introduction As Wall Street specialists in valuation, sell-side securities analysts constitute a particularly important class of market actor. Analysts produce the reports, recommendations and price targets that professional investors utilize to inform their buy and sell decisions, which means that understanding analysts’ work can provide crucial insights on the determinants of value in the capital markets. Yet our knowledge of analysts is limited by insufficient attention to Knight- ian uncertainty. Analysts estimate the value of stocks by calculating their net present value or by folding the future back into the present. In so doing, they are faced with the fundamental challenge identified by Frank Knight, that is, with the difficulty of making decisions that entail a future that is unknown. These decisions, as Knight wrote, are characterized by ‘neither entire ignorance nor complete...information, but partial knowledge’ of the world (Knight, [1921] 1971: 199). The finance literature has not examined the Knightian challenge faced by analysts. Indeed, existing treatments circumvent the problem by adopting one of two extreme positions. In the first, put forward by orthodox economists, it is assumed that Knightian uncertainty is non-existent

Journal

The Sociological ReviewSAGE

Published: Oct 1, 2007

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