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Are Analyst “Top Picks†Informative?

Author

Listed:
  • Justin Birru
  • Sinan Gokkaya
  • Xi Liu
  • René Stulz

Abstract

Following the Global Settlement, analysts extensively use a top pick designation allowing for greater granularity of information among buy recommended stocks, but conflicts of interest can potentially influence this designation. Examining a novel sample of top picks, we find that a calendar-time portfolio of top picks generates an abnormal performance of 17.6% per year. Top picks have greater investment value than do buy recommendations and alternative analyst investment strategies. Both institutional and retail investors trade in response to top picks. However, only institutional investors appear to identify top picks that have greater investment value when they are announced.

Suggested Citation

  • Justin Birru & Sinan Gokkaya & Xi Liu & René Stulz, 2024. "Are Analyst “Top Picks†Informative?," The Review of Financial Studies, Society for Financial Studies, vol. 37(5), pages 1538-1583.
  • Handle: RePEc:oup:rfinst:v:37:y:2024:i:5:p:1538-1583.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad099
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    More about this item

    Keywords

    G11; G12; G14; G20; G23; G24;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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