Analysts' Incentives to Produce Industry-Level Versus Firm-Specific Information
44 Pages Posted: 7 Mar 2005 Last revised: 15 Aug 2014
Date Written: November 2, 2009
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: Suggested Citation