Sell-side analysts over-attribute stocks’ downside scenarios to macroeconomic forces. We document this Macro Bear Bias in scenario-based valuation reports: conditional on the same market state, bear-case narratives emphasize aggregate macro risk far more than base- or bull-case narratives, even though realized CAPM $R^2$ is similar across realized bear, base, and bull outcomes. 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