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Do Differences in Analyst Quality Matter for Investors Relying on Consensus Information?

Author

Listed:
  • Roni Michaely

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong)

  • Amir Rubin

    (Simon Fraser University, Burnaby, British Columbia V5A 1S6, Canada; Reichman University, Herzliya, Tel Aviv 4610101, Israel)

  • Dan Segal

    (Reichman University, Herzliya, Tel Aviv 4610101, Israel; Warwick University, Coventry CV4 7AL, United Kingdom)

  • Alexander Vedrashko

    (Simon Fraser University, Burnaby, British Columbia V5A 1S6, Canada)

Abstract

This study investigates whether investors can reap economic benefits from analyzing differences in analyst quality. Although high-quality analysts’ average forecast is more accurate than the consensus forecast for firms with a large analyst following, the benefits of using high-quality analysts’ average forecasts are not economically significant. In contrast, the value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts’ forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns using option straddle and post-earnings announcement drift investment strategies.

Suggested Citation

  • Roni Michaely & Amir Rubin & Dan Segal & Alexander Vedrashko, 2024. "Do Differences in Analyst Quality Matter for Investors Relying on Consensus Information?," Management Science, INFORMS, vol. 70(2), pages 751-772, February.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:2:p:751-772
    DOI: 10.1287/mnsc.2023.4699
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    References listed on IDEAS

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