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Are the Wall Street Analyst Rankings Popularity Contests?

Published online by Cambridge University Press:  01 April 2009

Douglas R. Emery  and
Xi Li
Douglas R. Emery
Affiliation:
School of Business, 514 Jenkins, University of Miami, Coral Gables, FL 33124. [email protected]
Xi Li
Affiliation:
XL Partners LLC, 16 Capital Street, Boston, MA 02458. [email protected]
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Abstract

We investigate the (sell-side) analyst rankings of Institutional Investor (I/I) and The Wall Street Journal (WSJ), using data from 1993–2005. We find that factors with a primary component of recognition are the most important determinants of the rankings, although performance measures are statistically significant determinants in some cases. The single exception to this finding is with existing WSJ stars, where industry-adjusted investment-recommendation performance is the only significant determinant of repeating as a star. Further, in the year after becoming stars, the recommendations of WSJ stars are significantly worse than those of nonstars; and the recommendations and earnings forecasts of I/I stars, as well as the earnings forecasts of WSJ stars, are not significantly different from those of nonstars. We conclude that these rankings are largely “popularity contests.”

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 2 , April 2009 , pp. 411 - 437
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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