Are Stars' Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values

摘要

Using 1994-2009 data, we find that All-American (AA) analysts' buy and sell portfolio alphas significantly exceed those of non-AAs by up to 0.6 % per month after risk-adjustments for investors with advance access to analyst recommendations. For investors without such access, top-rank AAs still earn significantly higher (by 0.3 %) monthly alphas in buy recommendations than others. AAs' superior performance exists before (as well as after) they are elected, is not explained by market overreactions to stars, and is not significantly eroded after Reg-FD. Election to top-AA ranks predicts future performance in buy recommendations above and beyond other previously observable analyst characteristics. Institutional investors actively evaluate analysts and update the AA roster accordingly. Collectively, these results suggest that skill differences among analysts exist and AA election reflects institutional investors' ability to evaluate and benefit from elected analysts' superior skills. Other investors' opportunity to profit from the stars' opinions exists, but is limited due to their timing disadvantage.