Journal of Banking & Finance Vol. 146 2023
Can star analysts make superior coverage decisions in poor information environment?
Abstract
This study uses the quality of coverage decisions as a new metric to evaluate the performance of star and non-star analysts. We find that the coverage decisions of star analysts are better predictors of returns than those of non-star analysts. The return predictability of star analysts’ coverage decisions is stronger for informationally opaque stocks. We further exploit the staggered short selling deregulations, Google’s withdrawal, and the anti-corruption campaign as three quasi-natural experiments that create plausibly exogenous variations in the quality of information environment. These experiments show that the predictive power of star analysts’ coverage decisions strengthens (weakens) following a sharp deterioration (improvement) in firms’ information environment, consistent with the notion that star analysts possess superior ability to identify mispriced stocks. Overall, star analysts make better coverage decisions and play a superior role as information intermediaries, especially in poor information environment.
- DOI
- 10.1016/j.jbankfin.2022.106650
- Volume
- 146
- Pages
- 106650
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib