Analyst Talent, Information, and Investment Strategies

Posted: 14 Feb 2017 Last revised: 13 Feb 2019

See all articles by Chongyu Dang

Chongyu Dang

Founder Securities

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Zhenyang Tang

Clark University - Graduate School of Management

Date Written: November 13, 2017

Abstract

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

Dang, Chongyu and Foerster, Stephen R. and Li, Zhichuan Frank and Tang, Zhenyang, Analyst Talent, Information, and Investment Strategies (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=2916307 or http://dx.doi.org/10.2139/ssrn.2916307

Chongyu Dang

Founder Securities ( email )

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

Zhenyang Tang (Contact Author)

Clark University - Graduate School of Management ( email )

950 Main Street
Worcester, MA 01610
United States

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