Are Stars’ Opinions Worth More? The Relation between Analyst Reputation and Recommendation Values

48 Pages Posted: 17 Dec 2011

See all articles by Lily H. Fang

Lily H. Fang

INSEAD - Finance

Ayako Yasuda

University of California, Davis - Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 9, 2011

Abstract

Using 1994–2009 data, we find that All-American (AA) analysts’ buy and sell portfolio alphas significantly exceed those of non-AAs by up to 7% per annum after risk-adjustments for investors with advance access to analyst recommendations. For investors without such access, top-rank AAs still earn significantly higher (by 4%) annual alphas in buy recommendations than others. AAs’ superior performance exists before (as well as after) they are elected, is not explained by market overreactions to stars, and is not significantly eroded after Reg-FD. Election to top-AA ranks predicts future performance in buy recommendations above and beyond other previously observable analyst characteristics. Institutional investors actively evaluate analysts and update the AA roster accordingly. Collectively, these results suggest that skill differences among analysts exist and AA election reflects institutional investors’ ability to evaluate and benefit from elected analysts’ superior skills. Other investors’ opportunity to profit from the stars’ opinions exists, but is limited due to their timing disadvantage.

Keywords: Analyst reputation, star status, stock recommendations, institutional investors, performance evaluation

JEL Classification: G1, G2

Suggested Citation

Fang, Lily H. and Yasuda, Ayako, Are Stars’ Opinions Worth More? The Relation between Analyst Reputation and Recommendation Values (December 9, 2011). Available at SSRN: https://ssrn.com/abstract=1973334 or http://dx.doi.org/10.2139/ssrn.1973334

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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