Does Initial Placement Matter for Equity Analysts' Forecast Accuracy

41 Pages Posted: 10 Dec 2008 Last revised: 22 Nov 2011

Jess Cornaggia

Pennsylvania State University - Department of Finance

Lin Zou

affiliation not provided to SSRN

Date Written: September 23, 2008

Abstract

Equity analysts who are more accurate in forecasting earnings tend to work at higher quality brokerage houses. This relation is endogenous, making it difficult to infer causality between brokerage house quality and forecast accuracy. We identify the exogenous portion of equity analysts' initial placements with instruments including stock market conditions, market-wide investment banking activities, and market-wide net hiring or retiring of analysts. We find a significant effect of the exogenous portion of initial placement on analysts' career performance. Analysts with initial placements at top brokerage houses issue more accurate forecasts than their peers with similar ability, but worse initial placements. We find this relation exists because analysts at top brokerage houses have better access to information. Consistent with the access-to-information story, this relation becomes much weaker and almost disappears after the enactment of Regulation Fair Disclosure.

Suggested Citation

Cornaggia, Jess and Zou, Lin, Does Initial Placement Matter for Equity Analysts' Forecast Accuracy (September 23, 2008). Available at SSRN: https://ssrn.com/abstract=1314441 or http://dx.doi.org/10.2139/ssrn.1314441

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Lin Zou

affiliation not provided to SSRN ( email )

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