The Performance of Analysts with a CFA Designation: The Role of Human-Capital and Signaling Theories

43 Pages Posted: 5 Oct 2007

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

Yibin Zhou

University of Texas at Dallas - School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 3, 2007

Abstract

This study compares the performance of sell-side equity analysts with and without a CFA designation. Using a large sample of forecasts, our tests indicate that CFA charterholders issue forecasts that are moderately timelier and bolder than those of non-charterholders. We find that charterholders are more accurate only when we control for timeliness. There is some evidence that charterholders are less optimistic. Taken together, our results provide evidence that charterholders perform at modestly higher levels than non-charterholders. For a sub-sample of analysts, we are able to measure charterholders' performance before and after obtaining their CFA charter. We find evidence that charterholders issue timelier and bolder forecasts than non-charterholders do in the period before charterholders actually obtain their charter. We also find evidence that charterholders improve along the dimension of timeliness after they receive their charter. Our results are consistent with both human-capital and signaling theories of education. Last, we show that the market reaction is stronger for charterholders after controlling for timeliness, boldness, accuracy, and optimism. This result provides evidence consistent with credentialism, a variant of signaling theory in which a professionals education level provides a signal about the professionals quality to his or her clients.

Keywords: analyst forecasts, analyst performance, human capital, signaling, credentialism

JEL Classification: A11, G14, G28, G29, J24, J32, M41

Suggested Citation

De Franco, Gus and Zhou, Yibin, The Performance of Analysts with a CFA Designation: The Role of Human-Capital and Signaling Theories (October 3, 2007). Available at SSRN: https://ssrn.com/abstract=1019292 or http://dx.doi.org/10.2139/ssrn.1019292

Gus De Franco (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Yibin Zhou

University of Texas at Dallas - School of Management ( email )

2601 N. Floyd Road
Richardson, TX 75080
United States

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