Article2009

Are the Wall Street Analyst Rankings Popularity Contests?

140 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Financial Markets and Investment Strategies Auditing, Earnings Management, Governance Financial Analysis and Corporate Governance

Abstract

Abstract We investigate the (sell-side) analyst rankings of Institutional Investor (I/I) and The Wall Street Journal (WSJ), using data from 1993–2005. We find that factors with a primary component of recognition are the most important determinants of the rankings, although performance measures are statistically significant determinants in some cases. The single exception to this finding is with existing WSJ stars, where industry-adjusted investment-recommendation performance is the only significant determinant of repeating as a star. Further, in the year after becoming stars, the recommendations of WSJ stars are significantly worse than those of nonstars; and the recommendations and earnings forecasts of I/I stars, as well as the earnings forecasts of WSJ stars, are not significantly different from those of nonstars. We conclude that these rankings are largely “popularity contests.”

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References

1993Common risk factors in the returns on stocks and bonds 1997On Persistence in Mutual Fund Performance 1973Risk, Return, and Equilibrium: Empirical Tests 1997Measuring Mutual Fund Performance with Characteristic‐Based Benchmarks 1988Herd Behavior and Investment 2001Capital markets research in accounting 1996Do Brokerage Analysts' Recommendations Have Investment Value?2009The Economics of Superstars

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