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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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Listed:
  • Bae, Kee-Hong

    (Queen's U)

  • Stulz, Rene M.

    (Ohio State U)

  • Tan, Hongping

    (U of Northern British Columbia)

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 whether a firm has foreign assets, to market participation by foreign investors and by institutions and it is positively related to holdings by insiders. There is a positive correlation between the extent to which U.S. investors underweight a country’s stocks and that country’s analyst local advantage.

Suggested Citation

  • Bae, Kee-Hong & Stulz, Rene M. & Tan, Hongping, 2006. "Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts," Working Paper Series 2005-18, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2005-18
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    More about this item

    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; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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