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Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts

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Author Info
Kee-Hong Bae
Rene M. Stulz
Hongping Tan

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Abstract

This paper examines whether analysts resident in a country make more precise earnings forecasts for firms in that country than analysts who are not resident in that country. Using a sample of 32 countries, we find that there is an economically and statistically significant analyst local advantage even after controlling for firm and analyst characteristics. The importance of the local advantage is inversely related to the quality of the information provided by firms. In particular, the local advantage is high in countries where earnings are smoothed more, less information is disclosed by firms, and firm idiosyncratic information explains a smaller fraction of stock returns. The local advantage is also negatively related to market participation by foreign investors and by institutions and positively related to holdings by insiders. U.S. investors underweight a country's stocks more in their portfolios if that country has a higher analyst local advantage.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11697.

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Date of creation: Oct 2005
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Handle: RePEc:nbr:nberwo:11697

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Helge Berger & Michael Ehrmann & Marcel Fratzscher, 2006. "Forecasting ECB Monetary Policy: Accuracy Is (Still) a Matter of Geography," IMF Working Papers 06/41, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Rene M. Stulz, 2006. "Financial Globalization, Corporate Governance, and Eastern Europe," NBER Working Papers 11912, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Michael Fidora & Marcel Fratzscher & Christian Thimann, 2006. "Home bias in global bond and equity markets - the role of real exchange rate volatility," Working Paper Series 685, European Central Bank. [Downloadable!]
    Other versions:
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