Are Stars' Opinions Worth More? Evidence from Stock Recommendations 1994-2009
43 Pages Posted: 8 Mar 2011
Date Written: February 25, 2011
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: Suggested Citation