Analyst Skills in Producing Aggregate and Firm-specific Information: (When) Do These Skills Matter?
42 Pages Posted: 29 Mar 2021 Last revised: 19 Apr 2021
Date Written: April 19, 2021
This paper explores whether analyst skills in producing aggregate and firm-specific information facilitate valuable research in different states of the economy. I find that stock market reactions to analysts’ forecast and recommendation revisions in downturns (upturns) increase with analysts’ skills in producing aggregate (firm-specific) information, measured as their prior forecast accuracy for high-cyclicality (low-cyclicality) firms. These effects are more pronounced at smaller firms and those with lower analyst coverage and institutional ownership. I perform a number of robustness checks and rule out alternative explanations related to analyst efforts, analyst attention, investor sentiment, and sample selection effects. I also find that analysts’ skills in producing aggregate (firm-specific) information are associated with timelier research output and more favorable career outcomes in downturns (upturns). Overall, the evidence is consistent with the idea that investors give more weight to analysts’ aggregate information skills in downturns and to firm-specific information skills in upturns.
Keywords: Financial analysts, Informational skills, Informativeness, Business cycle
JEL Classification: G14, G24
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