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The Search for Benchmarks: When Do Crowds Provide Wisdom?

Author

Listed:
  • Lee, Charles M. C.

    (Stanford University)

  • Ma, Paul
  • Wang, Charles C. Y.

Abstract

We compare the performance of a comprehensive set of alternative peer identification schemes. Our results show the peer firms identified from aggregation of informed agents' revealed choices in Lee, Ma, and Wang (2014) perform best, followed by peers with the highest overlap in analyst coverage. Conversely, peers firms identified by Google and Yahoo Finance, as well as product market competitors gleaned from 10-K disclosures, turned in consistently worse performances. We contextualize these results in a simple model that predicts when information aggregation across heterogeneously informed individuals is likely to lead to improvements in dealing with the problem of economic benchmarking.

Suggested Citation

  • Lee, Charles M. C. & Ma, Paul & Wang, Charles C. Y., 2014. "The Search for Benchmarks: When Do Crowds Provide Wisdom?," Research Papers 3249, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3249
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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/search-benchmarks-when-do-crowds-provide-wisdom
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    Cited by:

    1. Gao, Ning & Hua, Chen & Khurshed, Arif, 2021. "Loan price in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 67(C).
    2. Aobdia, Daniel & Cheng, Lin, 2018. "Unionization, product market competition, and strategic disclosure," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 331-357.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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