Abstract

http://ssrn.com/abstract=1961199
 
 

References (42)



 


 



What Are Analysts Really Good At?


Ohad Kadan


Washington University in Saint Louis - John M. Olin Business School

Leonardo Madureira


Case Western Reserve University - Weatherhead School of Management

Rong Wang


Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

Tzachi Zach


Ohio State University (OSU) - Fisher College of Business

May 1, 2012

AFA 2013 San Diego Meetings Paper
26th Australasian Finance and Banking Conference 2013

Abstract:     
Sell-side analysts employ different benchmarks when defining their stock recommendations. For example, a ‘buy’ for some brokers means the stock is expected to outperform its peers in the same sector (“industry benchmarkers”), while for other brokers it means the stock is expected to outperform the market (“market benchmarkers”), or just some absolute return (“total benchmarkers”). We use these benchmarks to analyze the role of stock picking, industry picking and market timing in contributing to the performance of stock recommendations. We are able to do so given that different benchmarks suggest the use of different sets of abilities. Analysis of the relation between analysts’ recommendations and their long-term growth and earnings forecasts suggests that analysts indeed abide by their benchmarks. We find strong evidence that the investment value of stock recommendations stems from analysts picking winners and losers within a particular industry (stock picking) regardless of the declared benchmark. We find no evidence of either industry picking or market timing even for analysts whose benchmarks suggest the existence of such skills. The research carries implications for the correct understanding and interpretation of sell-side research and its investment value.

Number of Pages in PDF File: 54

Keywords: Analysts, Benchmarks, Stock Picking, Industry Picking, Market Timing

JEL Classification: G10, G24

working papers series


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Date posted: November 18, 2011 ; Last revised: November 14, 2013

Suggested Citation

Kadan, Ohad and Madureira, Leonardo and Wang, Rong and Zach, Tzachi, What Are Analysts Really Good At? (May 1, 2012). AFA 2013 San Diego Meetings Paper; 26th Australasian Finance and Banking Conference 2013. Available at SSRN: http://ssrn.com/abstract=1961199 or http://dx.doi.org/10.2139/ssrn.1961199

Contact Information

Ohad Kadan
Washington University in Saint Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-8737 (Phone)
314-935-6359 (Fax)
Leonardo Madureira
Case Western Reserve University - Weatherhead School of Management ( email )
364 PBL Building
Cleveland, OH 44106
United States
216-368-5003 (Phone)
HOME PAGE: http://faculty.weatherhead.case.edu/madureira/
Rong Wang
Singapore Management University ( email )
Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore
Singapore Management University - Lee Kong Chian School of Business ( email )
469 Bukit Timah Road
Singapore 912409
Singapore

Tzachi Zach (Contact Author)
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-4101 (Phone)

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