Do Star Analysts Shine in Opaque Industries? Evidence from European Banking
58 Pages Posted: 15 Jun 2020
Date Written: May 19, 2020
We assess whether skills allow sell-side analysts to mitigate the opaqueness of a whole industry. We rely on a sample of 5,150 recommendation changes relating to 80 European banks during a period that encompasses the financial and euro-zone crises. In contrast with other industries, recommendation changes made by talented analysts are not likelier to influence bank stock prices, as if opaqueness impedes analyst influence. However, these changes induce sharp negative revaluations of bank stock prices. Our results suggest that stars remain influential by focusing on selected large, complex institutions and being apt at identifying mis-pricings and uncovering bad news.
Keywords: Analysts, Skills, Banks
JEL Classification: G14, G21, G24
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