Identification of Analyst Coverage Initiations

Posted: 9 Jul 2021

See all articles by Jay Jung

Jay Jung

City, University of London - Cass Business School

Yong Yu

University of Texas at Austin

Wuyang Zhao

University of Texas at Austin - Department of Accounting

Date Written: June 27, 2021

Abstract

Researchers have traditionally inferred analysts’ coverage initiations using an analyst’s and/or a broker’s first recommendation for a firm in IBES. Using a large hand-collected sample of analyst reports announcing coverage initiations, we document that 17% of the traditionally-inferred initiations are not actual initiations (Type I error) and that 50% of the actual initiations are not identified using the traditional approach (Type II error). We show that these measurement errors lead to systematic biases in a variety of firm and analyst characteristics and in the distribution of analysts’ recommendations, and that correcting for these measurement errors changes an important prior finding. We assess the effectiveness of the methods that prior studies have used to mitigate the measurement errors, and suggest a new method that improves upon these prior methods.

Keywords: analyst, coverage initiation, measurement error, research implications

JEL Classification: G14, M41

Suggested Citation

Jung, Jay Heon and Yu, Yong and Zhao, Wuyang, Identification of Analyst Coverage Initiations (June 27, 2021). Available at SSRN: https://ssrn.com/abstract=3874894

Jay Heon Jung (Contact Author)

City, University of London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.jayheonjung.com

Yong Yu

University of Texas at Austin ( email )

1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)

Wuyang Zhao

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
5128262698 (Phone)

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