Do Differences in Analyst Quality Matter for Investors Relying on Consensus Information?

Roni Michaely, Amir Rubin (), Dan Segal () and Alexander Vedrashko ()
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Amir Rubin: Simon Fraser University, Burnaby, British Columbia V5A 1S6, Canada; Reichman University, Herzliya, Tel Aviv 4610101, Israel
Dan Segal: Reichman University, Herzliya, Tel Aviv 4610101, Israel; Warwick University, Coventry CV4 7AL, United Kingdom
Alexander Vedrashko: Simon Fraser University, Burnaby, British Columbia V5A 1S6, Canada

Management Science, 2024, vol. 70, issue 2, 751-772

Abstract: This study investigates whether investors can reap economic benefits from analyzing differences in analyst quality. Although high-quality analysts’ average forecast is more accurate than the consensus forecast for firms with a large analyst following, the benefits of using high-quality analysts’ average forecasts are not economically significant. In contrast, the value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts’ forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns using option straddle and post-earnings announcement drift investment strategies.

Keywords: consensus; analyst quality; forecasts; dispersion; post-earnings announcement drift (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:2:p:751-772

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