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Analyst Talent, Information, And Investment Strategies, Zhichuan Li, Stephen R. Foerster, Zhenyang Tang, Chongyu Dang
Analyst Talent, Information, And Investment Strategies, Zhichuan Li, Stephen R. Foerster, Zhenyang Tang, Chongyu Dang
Business Publications
Analyst talent, rather than the number of analysts following a firm, matters most to investors. We find: 1) Analysts with greater “natural” forecasting talent—controlling for experience, brokerage affiliation, and task complexity—contribute relatively more firm-specific rather than industry or market information; 2) Earnings forecasts by low-talent analysts may lead to substantial mispricing; 3) When earnings surprises are large, post-earnings-announcement drift is more prominent among firms covered by low-talent analysts; 4) Firms with low-talent analysts have significantly more insider trading prior to positive earnings news; and 5) Investing following insider trading is more profitable in stocks followed by low-talent analysts.