Common Analysts –Method for Defining Peer Firms

55 Pages Posted: 30 Dec 2012 Last revised: 10 Jan 2019

See all articles by Markku Kaustia

Markku Kaustia

Aalto University School of Business

Ville Rantala

University of Miami - Department of Finance

Date Written: December 20, 2018

Abstract

We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts’ coverage choices can reflect other important aspects of firm relatedness. We find that the analyst-based method produces substantially more homogenous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader economic implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.

Keywords: Peer firms, industry classification, analysts

JEL Classification: G19, G39

Suggested Citation

Kaustia, Markku and Rantala, Ville, Common Analysts –Method for Defining Peer Firms (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=2194624 or http://dx.doi.org/10.2139/ssrn.2194624

Markku Kaustia

Aalto University School of Business ( email )

P.O. Box 1210
Helsinki, 00100
Finland
+3589 4313 8475 (Phone)
+3589 4313 8678 (Fax)

Ville Rantala (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

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