Sell-side analysts over-attribute a stock’s downside risk to macroeconomic forces, near-unconditionally. We document this Macro Bear Bias in scenario-based valuation reports: bear-case narratives overemphasize aggregate macro risk relative to base- or bull-case narratives, even though realized CAPM $R^2$ is similar across bear, base, and bull outcomes conditional on the same market state. The bear–base macro-attention gap predicts systematic pessimism in subsequent base-case forecasts, and portfolios formed on a nonlinear bias-adjusted signal earn monthly CAPM alphas of up to 1.9%. Mechanism tests favor a cognitive availability-heuristic explanation—analysts anchor downside narratives on salient macro-crisis templates—over a strategic career-concerns explanation. Narrative templates analysts use to rationalize risk can distort analysts’ numerical forecasts and asset prices.
Bayes Junior Asset Management and Asset Pricing Workshop, The Oxford-Man Institute (OMI) Machine Learning in Quantitative Finance Conference 2026