What Do Questions Reveal? Skill Acquisition, Detection, and Recognition in the Capital Markets

Abstract

We construct an ex ante topic-specific skill measure based on the frequency of topic-specific questions that analysts raised in past earnings conference calls. In a supply chain information setting, we show that analysts with supply-chain-specific skill achieve a greater improvement in forecast accuracy relative to their peers when the firms experience firm-specific or market-wide supply-chain shocks. Analysts acquire skills through cross-brokerage learning and within-brokerage coaching. While brokerage firms do not assign tasks according to topic-specific skills, evidence based on the market reactions to recommendation updates and the information diffusion speed along the supply chain suggests that investors do recognize these skills. Overall, we provide a generalizable method that penetrates the black box of information processing and study the skill acquisition, detection, and diffusion in the capital market.

Keywords: Topic-Specific Skills; Information Processing; Supply Chain

JEL Classification: G24, D83, J24