Peer effects in equity research

• Main Authors: PHUA, Kenny, THAM, Mandy, WEI, Chi Shen
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Peer Effects; Analysts; Limited Attention; Networks; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6782; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7781/viewcontent/SSRN_id3643425.pdf
• Institution: Singapore Management University

We study the importance of peer effects among sell-side analysts who work at the same brokerage house, but cover different firms. By mapping the information network within each brokerage, we identify analysts who occupy central positions in their network. Central analysts incorporate more information from their coworkers and produce better research. Using shocks to network structures around brokerage mergers, we identify the influence of peer effects and the importance of industry expertise on analysts’ performance. A portfolio strategy that exploits the forecast revisions of central analysts earns up to 24% per annum.