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Peer Effects in Equity Research

Published online by Cambridge University Press:  12 August 2022

Kenny Phua ,
Mandy Tham  and
Chishen Wei Open the ORCID record for Chishen Wei [Opens in a new window]
Kenny Phua
Affiliation:
University of Technology Sydney UTS Business School kenny.phua@uts.edu.au
Mandy Tham
Affiliation:
Singapore Management University Lee Kong Chian School of Business mandytham@smu.edu.sg
Chishen Wei*
Affiliation:
Hong Kong Polytechnic University Faculty of Business
*
chishen.wei@polyu.edu.hk (corresponding author)
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Abstract

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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 the 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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 2 , March 2023 , pp. 647 - 676
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© THE AUTHOR(S), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee whose suggestions have substantially improved the article. We are also grateful to Brad Barber, Gennaro Bernile, Lauren Cohen, Steve Dimmock, Sinan Gokkaya, Umit Gurun, Jarrad Harford, Harrison Hong, Byoung-Hyoun Hwang, Chuan-Yang Hwang, Bryan Lim, Roger Loh, Angie Low, Abhiroop Mukherjee, Marco Navone, Jeffrey Ng, Chayawat Ornthanalai, Jianfeng Shen, Rui Shen, Jared Stanfield, Avanidhar Subrahmanyam, Gary Twite, Rong Wang, Bohui Zhang, Zhuo Zhong, and conference/seminar participants at the 2016 Asian FA Annual Conference, CICF 2016, European FA Annual Meeting, FIRCG conference, 2017 FMA Annual Meeting, 2017 SFS Cavalcade, Australian National University, Deakin University, Fudan University (School of Management, Fanhai International School of Finance), Hong Kong Baptist University, Hong Kong Polytechnic University, Nanyang Technological University, Singapore Management University, University of Melbourne, University of New South Wales, University of Queensland, and University of Technology Sydney for helpful comments. All errors are our own. We acknowledge research support from Nanyang Technological University, Singapore Management University, and University of Technology Sydney.

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