Are Stars Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values
Speaker
Abstract
| We examine the relation between analyst reputation and their recommendation values. We measure personal reputation using the Institutional Investor All-American (AA) awards. Daily rebalanced portfolios of AA analysts’ recommendations yield significantly better risk-adjusted performance than those of non-AA analysts. AAs’ alphas are concentrated in the top-ranked (1stand 2nd-place) AAs; the lower-ranked (3rd-place and runner-up) AAs do not perform better than non-AAs. Alphas for all analyst groups fall as investors’ access to recommendation information is delayed. But the assessed performance differential between the top-ranked AAs and other analysts is only marginally larger for investors who have private, pre-release access to recommendations than for public investors. The top-ranked AAs are also more experienced and have longer tenure as AAs than the lower-ranked AAs. Our results hold for both tech and non-tech sectors, are moderately strengthened by trading-cost adjustments, and are robust to alternative portfolio construction methods. We conclude that the top-ranked AAs are more skilled and produce more valuable information than other analysts. While the institution-granted AA status is a noisy indicator of analyst skill overall, the top two ranks of this award are useful signals from which public investors can benefit. |
| Lily Fang joined INSEAD as an Assistant Professor of Finance in 2003. She holds an MA and PhD in Finance from the Wharton School, University of Pennsylvania. Prior to studying finance, she studied mathematics, actuarial science and management science at Simon Fraser University, Vancouver, Canada. Professor Fang's research interest includes financial intermediation - the role of banks, investment banks, and stock analysts, and the relation between information environment and stock returns. Her work has examined issues such as the relation between investment bank reputation and the price and quality of underwriting service, and the effect of reputation - both personal reputation of individual analysts, and institutional reputation of investment banks - on the conflict of interest problem in Wall Street research. Professor Fang's work has appeared in prestigious journals such as the Journal of Finance and Financial Times. At INSEAD, Professor Fang teaches Financial Markets and Valuation, a core MBA finance course, and Private Equity Finance, an elective course in Finance. She is a co-director of the Mastering Alternative Investments program, an open-enrollment executive program. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
