Nowland, J. and Simon, A. 2010. The effect of a change in analyst composition on analyst forecast accuracy: Evidence from US cross-listing. Journal of International Accounting Research Vol. 9 No. 1 [NS.pdf]

ABSTRACT: Prior research has shown improvements in analysts’ forecast accuracy around various events (e.g. new disclosure regulations or cross-listings), but these studies do not consider a change in the composition and ability of analysts providing forecasts over time. By studying foreign firms cross-listing on U.S. stock exchanges, we find that analyst composition changes by over 50 percent during the three-year period around cross-listing. We show that cross-listing is associated with a shift away from analysts who are less accurate forecasters and toward analysts who are more accurate forecasters. This shift in analyst composition accounts for a significant improvement of 9.5 percent in analyst forecast accuracy. In addition, we document that changes in both analyst ability and public information disclosure affect analyst forecast accuracy around cross-listing. Our results indicate that researchers should control for changes in analyst composition and ability when measuring the impact of specific events on analyst forecast accuracy.                      

Konchitchki, Y. and Simon, A. Would you bet your savings on today’s best analysts? AAA 2010 Financial Accounting and Reporting Section  (FARS) Paper [KS.pdf]

ABSTRACT: We examine the persistence in analysts’ relative earnings forecast accuracy.  When analysts are ranked into forecast accuracy quintiles, calculated over all the firms they cover in each year, we find that superior (inferior) analysts, i.e., analysts in the lowest (highest) quintile, have 52% (45%) probability of remaining in this quintile in the subsequent period.  Further, we find that variation in the persistence of analysts’ relative forecast accuracy can be explained in large part by the extent of forecasting disagreement, i.e., the extent to which analyst forecast vary when predicting a firm’s earnings.  After controlling for forecasting disagreement the probability of analysts’ forecast accuracy persistence is significantly reduced by about half.  Our results are robust to whether an analyst is classified as All Star, and whether analysts are ranked into deciles.  This evidence is consistent with French’s (2008) argument that fees paid for active investment management might be wasteful.



Simon, A., Nowland, J., and Ramezani, C. Do long-term growth forecasts signal analyst quality or incentives? Target: Journal of Banking and Finance. [SNR.pdf]

ABSTRACT: The expected rate of growth in future earnings plays an important role in investment analysis. We examine two questions concerning analysts’ long-term earnings growth (LTG) forecasts. First, why do some analysts issue LTG forecasts while others do not? Second, is a trading strategy following the recommendations of analysts that issue LTG forecasts more profitable than following analysts that do not issue LTG forecasts?  For the first question, we predict that analysts issue LTG forecasts to signal their superior quality (forecasting ability, experience, private information) and to establish and maintain other business relationships (e.g. underwriting) with firms. Consistent with our predictions we find that analysts that issue LTG forecasts have better forecasting ability, more experience and more access to private information. Prior to Regulation FD, we find that analysts were more likely to issue LTG forecasts if their brokerage also provides underwriting services. After Regulation FD, this relationship is no longer significant. For the second question we show that the average factor-adjusted return associated with the stock recommendations of analysts issuing LTG forecasts exceeds the corresponding return for analysts not issuing LTG forecasts by 7.2% per year.