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

43 Pages Posted: 8 Mar 2011

See all articles by Lily H. Fang

Lily H. Fang

INSEAD - Finance

Ayako Yasuda

University of California, Davis - Graduate School of Management

Date Written: February 25, 2011

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.

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

Suggested Citation

Fang, Lily H. and Yasuda, Ayako, Are Stars' Opinions Worth More? Evidence from Stock Recommendations 1994-2009 (February 25, 2011). Available at SSRN: https://ssrn.com/abstract=1779383 or http://dx.doi.org/10.2139/ssrn.1779383

Lily H. Fang

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Ayako Yasuda (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-0775 (Phone)
530-752-2924 (Fax)

HOME PAGE: http://www.ayakoyasuda.com

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