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Analysts’ Incentives to Produce Industry-Level versus Firm-Specific Information


  • Liu, Mark H.


Using stock returns around recommendation changes to measure the information produced by analysts, I find that analysts produce more firm-specific than industry-level information. Analysts produce more firm-specific information on stocks with higher idiosyncratic return volatilities. The amount of industry information produced by analysts increases with the absolute value of the stock’s industry beta and decreases with the stock’s idiosyncratic volatility. Other stocks in the industry also respond to the recommendation change, and the magnitude of the response increases with the absolute value of the industry beta of the recommended stock and that of other stocks in the industry. I also offer results on how investors may use analyst research more effectively and potentially improve their investment performance.

Suggested Citation

  • Liu, Mark H., 2011. "Analysts’ Incentives to Produce Industry-Level versus Firm-Specific Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(03), pages 757-784, June.
  • Handle: RePEc:cup:jfinqa:v:46:y:2011:i:03:p:757-784_00

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    Cited by:

    1. Joel M. David & Ina Simonovska, 2016. "Correlated Beliefs, Returns, and Stock Market Volatility," NBER Chapters,in: NBER International Seminar on Macroeconomics 2015 National Bureau of Economic Research, Inc.
    2. repec:taf:applec:v:48:y:2016:i:47:p:4538-4557 is not listed on IDEAS
    3. Anolli, Mario & Beccalli, Elena & Molyneux, Philip, 2014. "Bank earnings forecasts, risk and the crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 309-335.
    4. Xu, Nianhang & Chan, Kam C. & Jiang, Xuanyu & Yi, Zhihong, 2013. "Do star analysts know more firm-specific information? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 89-102.
    5. Volkan Muslu & Michael Rebello & Yexiao Xu, 2014. "Sell-Side Analyst Research and Stock Comovement," Journal of Accounting Research, Wiley Blackwell, vol. 52(4), pages 911-954, September.
    6. repec:bla:abacus:v:53:y:2017:i:4:p:450-484 is not listed on IDEAS

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