Sleep Loss and Analyst Herding: Evidence from Daylight Saving Time Chang

Building on research in neuroscience and psychology, we examine changes in financial analysts’ tendency to herd using the daylight saving time (DST) change to capture sleep loss. Using annual earnings forecasts issued during the 30-day windows both before and after the week of DST change between 2002-2020, we find that analyst herding significantly increases on the Mondays after the change to DST in the spring. Cross-sectional analyses show that the increased herding is largely driven by analysts with more decision fatigue, those who cover more firms, and those who are likely night owls. In contrast, we find that analysts exhibit decreased tendency to herd on the Mondays after switching back to standard time in the fall when they gain an extra hour. In addition, we do not observe significant cross-sectional differences in the changes in analyst herding on Mondays after switching back to standard time, except that gaining an extra hour seems to mitigate the positive impact of decision fatigue on analyst herding. Our findings indicate that analysts resort to herding when sleep loss impairs their cognition, adding new evidence to the effects of sleep loss in the capital markets.