Study Finds School Ties Improve Analysts’ Accuracy

More evidence that it’s who you know that really matters: a new working paper * published by the Harvard Business School finds that sell-side analysts outperform on their stock recommendations when they went to the same university as a senior officer of the company. However, the authors also find that any advantage this might confer has beeen eradicated by regulation FD, designed to impede selective disclosure. “Exploiting novel data on the educational backgrounds of sell-side equity analysts and senior officers of firms,”the authors “test the hypothesis that analysts’ school ties to senior officers impart comparative information advantages in the production of analyst research.” They test the data by “building portfolios that replicate sell-side analysts’ recommendations and by comparing how analysts perform on firms to which they have ties, relative to those firms to which they do not.” Our main result is that equity analysts ...