Can star analysts make superior coverage decisions in poor information environment?

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 dec...

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Bibliographic Details
Published in:Journal of banking & finance 2023-01, Vol.146, p.106650, Article 106650
Main Authors: Jin, Han, Mazouz, Khelifa, Wu, Yuliang, Xu, Bin
Format: Article
Language:English
Subjects:
coverage decisions
information environment
return predictability
star analysts
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Summary: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.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2022.106650