All-Americans: The Best Picks?
December 28, 2011 - Investing Expertise
Do stock analysts elected to All-American (AA) status by institutional voters (via Institutional Investor magazine) reliably out-pick other analysts? In the December 2011 update of their paper entitled “Are Stars’ Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values”, Lily Fang and Ayako Yasuda examine the average performance of stock recommendations of AA analysts and other analysts as distinct groups. They further differentiate top-rank AAs (first and second place winners) from bottom-rank AAs (third-place and runners-up). They define “strong buy” and “buy” stock ratings as buy recommendations and “hold,” “sell” and “strong sell” ratings as sell recommendations. They focus on distinguishing skill from luck and information value from pure influence. They consider adjustments for five risk factors: market, size, book-to-market, momentum and technology sector. Competing portfolios hold recommended stocks for fixed intervals relative to public release dates with equal recommendation weighting and daily rebalancing. Using analyst recommendation data and associated stock returns for 1994 through 2009 (roughly 3,000 analysts and 20,000 stock recommendations per year), they find that: Keep Reading