Following the Leader: A Study of Individual Analysts Earnings Forecasts

This paper develops and tests procedures for identifying lead analysts based on the timeliness of analyst forecast revisions, the trading levels associated with these revisions, and forecast accuracy. Our framework provides an objective assessment of analyst quality that differs from the standard approach that uses survey evidence to rate analysts. Using a sample of equity analysts, we find that lead analysts identified by our procedures have more price impact than follower analysts. Evidence also is presented that suggests analysts use recent stock price trends to help them modify forecast revisions, regardless of whether the analyst is a leader or a follower. Finally, we find that our ranking procedures based on timeliness, trading volume, and accuracy are consistent. That is, if analysts are selected as timeliness leaders, they also tend to be volume and accuracy leaders.