How Skilled Are Security Analysts?

66 Pages Posted: 27 Mar 2018 Last revised: 22 Aug 2018

See all articles by Alan D. Crane

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business

Kevin Crotty

Rice University

Date Written: March 22, 2018

Abstract

The majority of security analysts are identified as skilled when the cross-section of analyst performance is modeled as a mixture of multiple skill distributions. Analysts exhibit heterogeneous skill–some are high-type, and some are low-type. On average, the recommendationrevisions of both types exhibit positive abnormal returns. The heterogeneity stems from differential ability to produce new information; all analysts can profitably process news. Top analysts outperform because more of their recommendations are influential (i.e., associated with statistically significant returns) and both their influential and non-influential recommendations are more informative than other analysts'. A majority of research firms are also identified as skilled.

Keywords: Stock recommendations, Security Analysts, Skill, Luck

JEL Classification: G14, G20, G24

Suggested Citation

Crane, Alan D. and Crotty, Kevin, How Skilled Are Security Analysts? (March 22, 2018). Available at SSRN: https://ssrn.com/abstract=3147238 or http://dx.doi.org/10.2139/ssrn.3147238

Alan D. Crane (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Kevin Crotty

Rice University ( email )

6100 Main Street
Houston, TX 77005-1892
United States

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