Analysts, News, Media and Market Sentiment
Friday, Jan. 5, 2018 8:00 AM - 10:00 AM
- Chair: Eric So, Massachusetts Institute of Technology
Navigating Wall Street: Career Concerns and Analyst Transitions From Sell-side to Buy-side
AbstractExisting studies find that sell-side analysts who make less accurate and less optimistic forecasts are more likely to be terminated, suggesting that career concerns affect their forecasting decisions. Using employment data collected from career-related websites (e.g., LinkedIn), we find that 32% of equity analysts that exited the sell-side industry find immediate employment at buy-side institutions. These prospective buy-side analysts do not make less accurate forecasts than analysts who remain in the sell-side industry. In fact, those with superior forecasting ability end up at a hedge fund, a private equity, or a venture capital firm. We find that analysts with prior buy-side experience and specialized education related to the industry they cover are more likely to switch to the buy-side. Buy-side institutions hire a sell-side analyst for her expertise on stocks on which the fund has already held large positions. Our findings suggest that analysts' exit from the sell-side industry is often a voluntary decision resulting from a worker-employer skill matching.
Media Reinforcement in International Financial Markets
AbstractWe introduce the possibility of a “reinforcement effect” between past returns and media-measured sentiment. When returns and sentiment point in the same direction (either up or down), prices are in the midst of overreacting. Such evidence of overreaction should disappear when returns and sentiment disagree. We find results supporting these views from parallel tests -- across liquid individual stocks, international equity markets, and currencies -- using weekly media scores for each asset culled from extensive data on cross-asset media coverage. Interestingly, the effect is consistently stronger in relatively more liquid assets, assets for which media coverage is relatively broad, and in subsets of media coverage generated by relatively more “local” news outlets. We find that for each of these asset groups, a simple “reinforcement” strategy of buying past losers with low sentiment and selling past winners with high sentiment earns spreads of several hundred basis points annually.
- G1 - General Financial Markets