Who Benefits from Analyst “Top Picks”?

Abstract

Following the Global Settlement, analysts extensively use a top pick designation to highlight their highest conviction best ideas. Such a designation enables analysts to provide greater granularity of information, but it can potentially be influenced by conflicts of interest. Examining a comprehensive sample of top picks, we find that they have greater investment value, attract greater media and investor attention, and lead to more trading than buy recommendations. Top picks that have poor ex-post investment performance are more likely to be influenced by strategic objectives. Institutional investors appear to be able to identify such top picks while retail investors do not.

Keywords: Top picks, analyst, conflicts of interest, investor attention, investment value, career concerns

JEL Classification: G11, G12, G14, G20, G23, G24