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Speed and Expertise in Stock Picking: Older, Slower, and Wiser?

Published online by Cambridge University Press:  10 March 2022

Romain Boulland ,
Chayawat Ornthanalai Open the ORCID record for Chayawat Ornthanalai [Opens in a new window]  and
Kent L. Womack
Romain Boulland
Affiliation:
ESSEC Business School [email protected]
Chayawat Ornthanalai*
Affiliation:
University of Toronto Rotman School of Management and Canadian Derivatives Institute
Kent L. Womack
Affiliation:
University of Toronto Rotman School of Management [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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There are significant differences among sell-side analysts in how frequently they revise recommendations. We show that much of this variation is an analyst-individual trait. Analysts who change recommendations more slowly make recommendations that are more influential and generate better portfolio returns. Slower-revising analysts tend to change recommendations following corporate news that are harder to interpret by nonstock experts, and our evidence suggests that their investment value derives from their ability to better interpret hard-to-assess information. On average, analysts change recommendations less frequently as their career progresses; however, recommendation speed-style is the dominant predictor of their recommendation value.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 4 , June 2023 , pp. 1612 - 1644
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

Professor Kent L. Womack passed away unexpectedly in 2015. This article is his last work, and he is greatly missed. He was at the Rotman School of Management, University of Toronto.

We thank Jarrad Harford (the editor) and Ayako Yasuda (the referee). We also thank Daniel Bradley, Jonathan Clarke, Lily Fang, Jose Guedes, Heiko Jacobs, Jennifer Jordan, Ohad Kadan, Stefan Lewellen, Roger Loh, Andreea Moraru-Arfire, Jay Ritter, Maria Rotundo, Richard Thaler, David Veenman, and Frank Zhang. We especially thank Alok Kumar and Kelvin Law for providing us with data on analysts’ gender, and thank Lily Fang and Ayako Yasuda for providing us with Institutional Investor’s all-star analyst data. This article has benefited from comments by conference and seminar participants at AFA 2017, EFA 2015, MIT-Asia 2015, NFA 2015, FMA 2015, NTU, HKUST, Singapore Management University, ESSEC, University Paris-Dauphine, University of Alberta, University of Arizona, University of Oklahoma, and University of Florida. We thank Ching Tse Chen, Talha Irshad, Yang (Karl) Qu, and Valerie Zhang for their excellent research assistance on this article. Ornthanalai gratefully acknowledges the financial support from the Social Science and Humanities Research Council (SSHRC), and the Canadian Derivatives Institute (CDI). We are responsible for all inadequacies.

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