Analysts' Incentives to Produce Industry-Level Versus Firm-Specific Information

44 Pages Posted: 7 Mar 2005 Last revised: 15 Aug 2014

See all articles by Mark H. Liu

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics

Date Written: November 2, 2009

Abstract

Using stock returns around recommendation changes to measure the information produced by analysts, I find that analysts produce more firm-specific than industry information. Analysts produce more firm-specific information on stocks with higher idiosyncratic return volatilities. The amount of industry information produced by analysts increases with the absolute value of the stock's industry beta and decreases with the stock's idiosyncratic volatility. Other stocks in the industry also respond to the recommendation change, and the magnitude of the response increases with the absolute value of the industry beta of the recommended stock and that of other stocks in the industry. I also offer results on how investors may use analyst research more effectively and potentially improve their investment performance.

Keywords: Analyst recommendation, industry-level information, firm-specific information

JEL Classification: D82, G14, G24

Suggested Citation

Liu, Mark H., Analysts' Incentives to Produce Industry-Level Versus Firm-Specific Information (November 2, 2009). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=680000 or http://dx.doi.org/10.2139/ssrn.680000

Mark H. Liu (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)

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