How Skilled Are Security Analysts?
62 Pages Posted: 27 Mar 2018 Last revised: 11 Jun 2019
Date Written: March 22, 2018
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: Suggested Citation