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
Date Written: May 25, 2019
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
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