Are Stars’ Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values

Using 1994–2009 data, we find that All-American (AA) analysts’ buy and sell portfolio alphas significantly exceed those of non-AAs by up to 0.6 % per month after risk-adjustments for investors with advance access to analyst recommendations. For investors without such access, top-rank AAs still earn...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial services research 2014-12, Vol.46 (3), p.235-269
Main Authors: Fang, Lily H., Yasuda, Ayako
Format: Article
Language:English
Subjects:
Difference
Earnings
Economics and Finance
Elections
Finance
Financial Services
Hypotheses
Institutional investments
Institutional investors
Macroeconomics/Monetary Economics//Financial Economics
Market
Portfolio management
Portfolio performance
Profit
Reputations
Return on investment
Risk
Securities analysis
Skills
Studies
U.S.A
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Using 1994–2009 data, we find that All-American (AA) analysts’ buy and sell portfolio alphas significantly exceed those of non-AAs by up to 0.6 % per month after risk-adjustments for investors with advance access to analyst recommendations. For investors without such access, top-rank AAs still earn significantly higher (by 0.3 %) monthly alphas in buy recommendations than others. AAs’ superior performance exists before (as well as after) they are elected, is not explained by market overreactions to stars, and is not significantly eroded after Reg-FD. Election to top-AA ranks predicts future performance in buy recommendations above and beyond other previously observable analyst characteristics. Institutional investors actively evaluate analysts and update the AA roster accordingly. Collectively, these results suggest that skill differences among analysts exist and AA election reflects institutional investors’ ability to evaluate and benefit from elected analysts’ superior skills. Other investors’ opportunity to profit from the stars’ opinions exists, but is limited due to their timing disadvantage.
ISSN:0920-8550
1573-0735
DOI:10.1007/s10693-013-0178-y