The Impact of Star Analyst Awards on Equity Markets: A Regression Discontinuity Design

65 Pages Posted: 9 Sep 2020 Last revised: 25 Jan 2021

See all articles by Siyu Chen

Siyu Chen

The Institute for Economic and Social Research, Jinan University

Runjing Lu

University of Alberta - Department of Finance

Date Written: August 21, 2020

Abstract

Using a regression discontinuity design, we study the causal impact of an influential star analyst award on market reaction and analysts’ post-award performance. We find that the award announcement leads to higher market reaction to stocks with preexisting recommendations from analysts who barely win the award than those from analysts who barely miss it, but the difference in market reaction fully reverses within 20 trading days. Evidence strongly suggests that attention trading and speculative trading over the anticipation of the overreaction are the main driving force while the signal of award winners’ ability plays little role. In addition, we find that analysts with award designations receive more resources from brokerages and perform better in earnings forecast than others in the year after the award announcement. Our findings highlight that investors may incorporate award information into their trading suboptimally and that award recognitions have long-lasting effects on sell-side research through resource reallocation.

Keywords: Star analyst, Public award, Attention trading

JEL Classification: G12, G4, M41, G14

Suggested Citation

Chen, Siyu and Lu, Runjing, The Impact of Star Analyst Awards on Equity Markets: A Regression Discontinuity Design (August 21, 2020). Available at SSRN: https://ssrn.com/abstract=3678805 or http://dx.doi.org/10.2139/ssrn.3678805

Siyu Chen

The Institute for Economic and Social Research, Jinan University ( email )

Guangzhou
Singapore

HOME PAGE: http://https://www.siyuchen.website/

Runjing Lu (Contact Author)

University of Alberta - Department of Finance ( email )

Edmonton, Alberta T6G 2R3
Canada

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