Do Stars Shine? Comparing the Performance Persistence of Star Sell-Side Analysts Listed by Institutional Investor, the Wall Street Journal, and StarMine

Abstract

In this study, we investigate the profitability persistence of the investment recommendations from analysts listed in four different star rankings: Institutional Investor magazine, StarMine’s “Top Earnings Estimators” and “Top Stock Pickers” and The Wall Street Journal. We compare the performance in the previous year with the post-election period and show the predictive power of each evaluation methodology used by mentioned star ratings. We document that the highest average monthly abnormal return of holding a long-short portfolio, 1.58 percent, is obtained by following the recommendations of the group of star sell-side analysts rated by The Wall Street Journal during the period from 2003-2013. The highest drop in the performance from the pre-election to the post-selection period was observed for the group of analysts listed by the “Top Stock Pickers” of StarMine. The results indicate that the choice of analyst ranking is economically important in making investment decisions.

Keywords: Star analysts, Analyst recommendations, StarMine, Institutional Investor, The Wall Street Journal

JEL Classification: G23, G24