Sell-Side Analysts and Gender: A Comparison of Performance, Behavior, and Career Outcomes

Xi Li, Rodney N. Sullivan, Danielle Xu and Guodong Gao

Financial Analysts Journal, 2013, vol. 69, issue 2, 83-94

Abstract: Using a comprehensive sample of investment recommendations, the authors investigated differences in the performance, behavior, and career outcomes of male and female sell-side analysts. They found that the recommendations of female analysts, compared with those of their male counterparts, produce similar abnormal returns but with lower idiosyncratic risks. Further, gender does not seem to negatively affect female analysts’ career outcomes as defined by their “star” rankings and job mobility among brokerage firms.Sell-side analysts are important and prominent figures in the portfolio management community. Identifying those analysts with superior earnings forecast and investment recommendation abilities consumes significant investor resources.Using a large sample of investment recommendations from January 1994 through December 2005, we examined whether female sell-side analysts perform and behave differently from their male counterparts. Controlling for analyst performance and behavior, we further examined evidence related to whether career outcomes of female analysts differ from those of male analysts.Specifically, we compared male and female analysts in terms of their (1) performance, as measured by the excess return (alpha) of investment recommendations, (2) risk taking, measured as the portfolio residual risk implied by investment recommendations, (3) bias, measured as the percentage of sell recommendations, and (4) career outcomes, measured as the probability of moving among brokerage firms of different sizes and by the probability of their being an Institutional Investor or Wall Street Journal star.We found that the investment recommendations of female analysts as compared with those of their male counterparts produce similar abnormal returns but with lower idiosyncratic risks. These results imply that the recommendations of female analysts may generate slightly higher information ratios than those of their male counterparts. Our results further suggest that female analysts underperform with respect to their upgrade recommendations and have little or no outperformance with their downgrades. This finding may be consistent with our finding that female analysts tend to take less risk in their recommendations than do their male counterparts.Finally, our examination of the relation between gender and career outcomes with respect to job mobility among brokerage firms and star status based on Institutional Investor and Wall Street Journal rankings showed no evidence of discrimination against female analysts. In fact, female analysts seem to have a better chance than male analysts of being recognized as stars in both the Institutional Investor and the Wall Street Journal analyst rankings. Editor’s Note: Rodney N. Sullivan, CFA, is editor of the Financial Analysts Journal. He was recused from the referee and acceptance processes and took no part in the scheduling and placement of this article. See the FAJ policies section of cfapubs.org for more information.

Date: 2013
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DOI: 10.2469/faj.v69.n2.4

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