Analyst Talent, Information, and Investment Strategies
Posted: 14 Feb 2017 Last revised: 13 Feb 2019
Date Written: November 13, 2017
Analyst talent, rather than the number of analysts following a firm, matters most to investors. Analysts with greater “natural” forecasting talent—controlling for experience, brokerage affiliation, and task complexity—contribute relatively more firm-specific rather than industry or market information related to covered firms. Earnings forecasts by low-talent analysts may lead to substantial mispricing. When earnings surprises are large, post-earnings-announcement drift is more prominent among firms with low-talent analysts. Firms covered by low-talent analysts have significantly more insider trading prior to positive earnings news. Furthermore, investing following insider trading is more profitable in stocks followed by low-talent analysts.
Keywords: Analyst innate ability, Information asymmetry, Insider trading, Sell-side financial analyst, Earnings announcements
JEL Classification: G14
Suggested Citation: Suggested Citation