Experience, Expertise and the Forecasting Performance of Security Analysts

48 Pages Posted: 26 Jan 1998

See all articles by John Jacob

John Jacob

University of Colorado at Boulder - Department of Accounting

Thomas Z. Lys

Northwestern University - Kellogg School of Management

Margaret Neale

Stanford Graduate School of Business

Date Written: December 12, 1997

Abstract

We examine the ongoing performance of forecast analysts who change their brokerage affiliation and/or the companies they follow. On average, analysts who leave a brokerage house exhibit a decline in the forecast accuracy relative to all other analysts who follow the same company(s) as they approach the replacement date. Analysts joining a new brokerage house and/or follow new companies, however, do not become more accurate as they gain experience. This result is consistent with our finding of commonalities in analysts' performance across all the companies they follow, suggesting differential levels of innate or native abilities among analysts. The results also indicate that situational factors such as brokerage size and industry specialization by the brokerage have a positive impact on forecast accuracy. For example, large brokerage houses tend to be associated with analysts who issue more accurate forecasts. Similarly, analyst turnover within a brokerage has a detrimental effect on forecast accuracy of the remaining analysts. Overall, the results suggest that situational or brokerage related factors have a significant effect on analysts' forecast accuracy.

JEL Classification: G29

Suggested Citation

Jacob, John and Lys, Thomas Z. and Neale, Margaret A., Experience, Expertise and the Forecasting Performance of Security Analysts (December 12, 1997). Available at SSRN: https://ssrn.com/abstract=54681 or http://dx.doi.org/10.2139/ssrn.54681

John Jacob

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States
303-735-6335 (Phone)

Thomas Z. Lys (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Department of Accounting & Information Systems
Evanston, IL 60208
United States
847-491-2673 (Phone)
847-467-1202 (Fax)

Margaret A. Neale

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
415-725-7979 (Fax)

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