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The value of analysts’ recommendations and the organization of financial research

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Author Info
Salva, C.
Sonney, F. (Vlerick Leuven Gent Management School)
Abstract

Brokerage houses usually organize their research activities by country or economic sector. We evaluate which research structure provides most value to investors. To do so, we study the relative information content of recommendations issued by country-specialized analysts and sector-specialized analysts. Our findings show that the former issue more valuable recommendations. The strength of country-specific commonalities explains at least part of the better performance of country-specialized financial analysts. Surprisingly, although analysts’ geographic location has been shown in the literature to be a determinant of earnings forecast accuracy, it is not a source of a comparative advantage when it comes to stock recommendations.

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Publisher Info
Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2009-10.

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Length: 50 pages
Date of creation: 04 Apr 2009
Date of revision:
Handle: RePEc:vlg:vlgwps:2009-10

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Related research
Keywords: financial analysts; stock recommendations; country and sector factors; geography;

Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G29 - Financial Economics - - Financial Institutions and Services - - - Other
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

This paper has been announced in the following NEP Reports:

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  1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March. [Downloadable!] (restricted)
  2. Loh, Roger & Mian, G. Mujtaba, 2005. "Do Accurate Earnings Forecasts Facilitate Superior Investment Recommendations?," Working Paper Series 2004-17, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  3. Christopher J. Malloy, 2005. "The Geography of Equity Analysis," Journal of Finance, American Finance Association, vol. 60(2), pages 719-755, 04. [Downloadable!] (restricted)
  4. Asquith, Paul & Mikhail, Michael B. & Au, Andrea S., 2005. "Information content of equity analyst reports," Journal of Financial Economics, Elsevier, vol. 75(2), pages 245-282, February. [Downloadable!] (restricted)
  5. Brad Barber, 2001. "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns," Journal of Finance, American Finance Association, vol. 56(2), pages 531-563, 04. [Downloadable!] (restricted)
  6. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August. [Downloadable!] (restricted)
  7. Ivkovic, Zoran & Jegadeesh, Narasimhan, 2004. "The timing and value of forecast and recommendation revisions," Journal of Financial Economics, Elsevier, vol. 73(3), pages 433-463, September. [Downloadable!] (restricted)
  8. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February. [Downloadable!] (restricted)
  9. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October. [Downloadable!] (restricted)
  10. Narasimhan Jegadeesh & Joonghyuk Kim & Susan D. Krische & Charles M. C. Lee, 2004. "Analyzing the Analysts: When Do Recommendations Add Value?," Journal of Finance, American Finance Association, vol. 59(3), pages 1083-1124, 06. [Downloadable!] (restricted)
  11. Jegadeesh, Narasimhan & Kim, Woojin, 2006. "Value of analyst recommendations: International evidence," Journal of Financial Markets, Elsevier, vol. 9(3), pages 274-309, August. [Downloadable!] (restricted)
  12. Clement, Michael B., 1999. "Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?," Journal of Accounting and Economics, Elsevier, vol. 27(3), pages 285-303, July. [Downloadable!] (restricted)
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