Analyst talent, information, and insider trading

Document Type

Article

Abstract

We examine 1984–2018 data and show that the talent or ability of sell-side financial analysts affects a covered firm's information environment—more so than the simple number of analysts covering a firm. We find that while analysts in general produce market and industry-level information, high-ability analysts contribute more firm-specific information. Firms covered by high-ability analysts experience significantly less insider trading prior to positive earnings news. Results only reside in opportunistic (not routine) trades. When an analyst initiates (terminates) coverage we find decreased (increased) subsequent insider trading. Both changes are primarily driven by analyst talent. Analyst ability also negatively relates to insider trading profitability.

Publication Title

Journal of Corporate Finance

Publication Date

4-1-2021

Volume

67

ISSN

0929-1199

DOI

10.1016/j.jcorpfin.2020.101803

Keywords

analyst talent, earnings announcements, information asymmetry, insider trading, sell-side financial analyst

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