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Financial Analysts' Performance: Sector Versus Country Specialization

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  • Frédéric Sonney

Abstract

Brokerage houses normally structure their research activities along either country or sector lines. I investigate whether organizational structure affects the quality of financial analysts' earnings forecasts. Specifically, I compare the performance of country-specialized financial analysts with that of sector-specialized financial analysts. The former issue forecasts considerably more accurately than the latter. Country specialists benefit from an informational advantage over sector specialists. A superior knowledge of country-specific factors, as well as geographical proximity between analysts and the firms they cover, are significant determinants of this advantage. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Frédéric Sonney, 2009. "Financial Analysts' Performance: Sector Versus Country Specialization," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 2087-2131, May.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:5:p:2087-2131
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    Cited by:

    1. Omesh Kini & Shehzad Mian & Michael Rebello & Anand Venkateswaran, 2009. "On the Structure of Analyst Research Portfolios and Forecast Accuracy," Journal of Accounting Research, Wiley Blackwell, vol. 47(4), pages 867-909, September.
    2. Stolowy, Hervé & Jeanjean, Thomas & Erkens, Michael, 2011. "The economic consequences of increasing the international visibility of financial reports," HEC Research Papers Series 957, HEC Paris.
    3. Young‐Soo Choi & Svetlana Mira & Nicholas Taylor, 2022. "Local versus foreign analysts' forecast accuracy: does herding matter?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1143-1188, April.
    4. Rounaghi, Mohammad Mahdi & Nassir Zadeh, Farzaneh, 2016. "Investigation of market efficiency and Financial Stability between S&P 500 and London Stock Exchange: Monthly and yearly Forecasting of Time Series Stock Returns using ARMA model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 456(C), pages 10-21.
    5. Christof Beuselinck & Philip Joos & Inder Khurana & Sofie van Der Meulen, 2017. "Which Analysts Benefited Most from Mandatory IFRS Adoption in Europe?," Post-Print hal-01745251, HAL.
    6. Chen, An-Sing & Chang, Chong-Chuo & Cheng, Lee-Young & Tu, Hsing-Yu, 2016. "Do analysts cater to investor beliefs via target prices," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 232-252.
    7. Faias, José A. & Ferreira, Miguel A., 2017. "Does institutional ownership matter for international stock return comovement?," Journal of International Money and Finance, Elsevier, vol. 78(C), pages 64-83.
    8. Hiraki, Takato & Liu, Ming & Wang, Xue, 2015. "Country and industry concentration and the performance of international mutual funds," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 297-310.
    9. Nahida Akter & Ashadun Nobi, 2018. "Investigation of the Financial Stability of S&P 500 Using Realized Volatility and Stock Returns Distribution," JRFM, MDPI, vol. 11(2), pages 1-10, April.
    10. Mahdi Moradi & Mehdi Jabbari Nooghabi & Mohammad Mahdi Rounaghi, 2021. "Investigation of fractal market hypothesis and forecasting time series stock returns for Tehran Stock Exchange and London Stock Exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 662-678, January.
    11. Hope, Ole-Kristian & Su, Xijiang, 2021. "Peer-level analyst transitions," Journal of Corporate Finance, Elsevier, vol. 70(C).
    12. Banegas, Ayelen & Gillen, Ben & Timmermann, Allan & Wermers, Russ, 2013. "The cross section of conditional mutual fund performance in European stock markets," Journal of Financial Economics, Elsevier, vol. 108(3), pages 699-726.
    13. Henock Louis & Amy X. Sun & Oktay Urcan, 2013. "Do Analysts Sacrifice Forecast Accuracy for Informativeness?," Management Science, INFORMS, vol. 59(7), pages 1688-1708, July.
    14. Jeanjean, Thomas & Lesage, Cédric & Stolowy, Hervé, 2010. "Why do you speak English (in your annual report)?," The International Journal of Accounting, Elsevier, vol. 45(2), pages 200-223, June.
    15. Serkan Karadas & Jorida Papakroni, 2019. "Local predictive ability of analyst recommendations," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 351-371, July.
    16. Yi Dong & Nan Hu & Xu Li & Ling Liu, 2017. "Analyst Firm Coverage and Forecast Accuracy: The Effect of Regulation Fair Disclosure," Abacus, Accounting Foundation, University of Sydney, vol. 53(4), pages 450-484, December.
    17. Vadim S. Balashov & Zhanel B. DeVides, 2020. "Is Diversification A Job Safety Net For Sell‐Side Analysts?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 543-573, August.
    18. Guanming He & Yun Sun & April Zhichao Li, 2024. "Does analysts’ industrial concentration affect the quality of their forecasts?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 38(1), pages 37-91, March.
    19. Jani Saastamoinen & Hannu Ojala & Kati Pajunen & Pontus Troberg, 2018. "Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting," Australian Accounting Review, CPA Australia, vol. 28(4), pages 538-555, December.
    20. Huang, Allen H. & Lin, An-Ping & Zang, Amy Y., 2022. "Cross-industry information sharing among colleagues and analyst research," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    21. Premti, Arjan & Garcia-Feijoo, Luis & Madura, Jeff, 2017. "Information content of analyst recommendations in the banking industry," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 35-47.
    22. Rui Chen & Zhennan Gao & Xueyong Zhang & Min Zhu, 2018. "Mutual Fund Managers’ Prior Work Experience and Their Investment Skill," Financial Management, Financial Management Association International, vol. 47(1), pages 3-24, March.
    23. Thomas Jeanjean & Hervé Stolowy & Michael Erkens, 2012. "Economic consequences of adopting English for annual reports," Post-Print hal-00690931, HAL.
    24. Vidal-García, Javier, 2013. "The persistence of European mutual fund performance," Research in International Business and Finance, Elsevier, vol. 28(C), pages 45-67.
    25. Thomas Jeanjean & Hervé Stolowy & Michael Erkens, 2010. "Really “Lost in translation”? The economic consequences of issuing an annual report in English," Post-Print hal-00479511, HAL.

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