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Who Benefits from Analyst “Top Picks”?

Fisher College of Business Working Paper No. 2020-03-024

Charles A. Dice Working Paper No. 2020-24

80 Pages Posted: 25 Oct 2020 Last revised: 19 Nov 2021

See all articles by Justin Birru

Justin Birru

Ohio State University (OSU) - Department of Finance

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: October 22, 2020

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

Suggested Citation

Birru, Justin and Gokkaya, Sinan and Liu, Xi and Stulz, Rene M., Who Benefits from Analyst “Top Picks”? (October 22, 2020). Fisher College of Business Working Paper No. 2020-03-024, Charles A. Dice Working Paper No. 2020-24, Available at SSRN: https://ssrn.com/abstract=3717851 or http://dx.doi.org/10.2139/ssrn.3717851

Justin Birru

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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