Is Diversification a Job Safety Net for Sell-Side Analysts?

The Journal of Financial Research, 43(3), 543-573.

63 Pages Posted: 12 Jun 2019 Last revised: 26 Dec 2020

See all articles by Vadim S. Balashov

Vadim S. Balashov

Rutgers School of Business-Camden

Zhanel DeVides

Penn State - Abington

Date Written: May 25, 2019

Abstract

We study sell-side analysts’ motives to diversify their portfolios across industries. Despite the negative association between diversification and accuracy, over 60% of analysts cover multiple industries. We argue that analysts’ choice to diversify is rooted in concerns about future job security. We find that more diversified analysts are less likely to experience job turnover and leave the profession but are not more likely to advance their careers. For experienced and all-star analysts, diversification does not improve career outcomes. We conclude that industry diversification is a safety mechanism for inexperienced and unranked analysts who are concerned about job security.

Keywords: analysts’ career outcomes, institutional investor all-star ranking, diversification, analysts’ accuracy, job turnover

JEL Classification: G11, G14, G24, M41

Suggested Citation

Balashov, Vadim S. and DeVides, Zhanel, Is Diversification a Job Safety Net for Sell-Side Analysts? (May 25, 2019). The Journal of Financial Research, 43(3), 543-573., Available at SSRN: https://ssrn.com/abstract=3394308 or http://dx.doi.org/10.2139/ssrn.3394308

Vadim S. Balashov (Contact Author)

Rutgers School of Business-Camden ( email )

Camden, NJ 08102
United States
856-225-6706 (Phone)

Zhanel DeVides

Penn State - Abington ( email )

1600 Woodland Rd
Abington, PA 19001
United States
267-633-3325 (Phone)

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