Do Security Analysts Exhibit Persistent Differences in Stock Picking Ability?

Posted: 11 Feb 2002 Last revised: 10 Aug 2014


We investigate if sell-side security analysts exhibit relative persistence in their stock picking ability. We find that analysts whose recommendation revisions earned the most (least) positive excess returns in the past continue to outperform (underperform) other analysts in the future. Further, we find that the market recognizes these performance differences in the five-day period surrounding the recommendation revision. This market reaction, however, is incomplete. Excess returns measured over the one and three trading months following the revision are significantly different from zero and positively associated with the analysts' prior performance. A trading strategy taking long (short) positions in recommendation upgrades (downgrades) conditional on an analyst's prior performance generates excess returns, but these returns are insufficient to cover transaction costs.

Keywords: Security analysts; Stock recommendations; Persistence; Trading strategy

JEL Classification: G11, G14, G24

Suggested Citation

Mikhail, Michael B. and Walther, Beverly R. and Willis, Richard H., Do Security Analysts Exhibit Persistent Differences in Stock Picking Ability?. Journal of Financial Economics, Vol. 74, pp. 67-91, 2004, Available at SSRN: or

Michael B. Mikhail

University of Illinois at Chicago - College of Business Administration ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States

Beverly R. Walther

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1595 (Phone)
847-467-1202 (Fax)

Richard H. Willis (Contact Author)

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States
615-343-1050 (Phone)
615-343-7177 (Fax)

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