Are Stars' Opinions Worth More? Evidence from Stock Recommendations 1994-2009

Abstract:     
Using 1994-2009 data, we document that All-American (AA) analysts’ buy and sell recommendations outperform those of non-AAs by over 7% per annum after risk-adjustments. This performance differential exists both before and after AAs are elected, does not exhibit long-run reversal, and is not significantly eroded by Reg-FD. Election to top-AA ranks predicts performance in buy recommendations above and beyond other observable analyst characteristics. Conflicts-of-interest reforms around 2002-2003 led to departures of experienced and high-performing AAs from the sell-side analyst pool; as a response, institutional investors shuffled the AA pool in a way that helped preserve the AA pool’s performance. Collectively, these results suggest that skill differences among analysts exist and the AA status incorporates institutional investors’ ability to evaluate analysts.

Number of Pages in PDF File: 43

Keywords: Analyst reputation, star analysts, star status, stock recommendations, analyst skill, reg-FD, Government policy and regulation, conflict-of-interest reforms, Institutional investors

JEL Classification: G1, G2

working papers series