Analyst Talent, Information, and Insider Trading

48 Pages Posted: 14 Feb 2017 Last revised: 28 Nov 2020

See all articles by Chongyu Dang

Chongyu Dang

Founder Securities

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Zhenyang Tang

Clark University

Date Written: December 8, 2020

Abstract

We examine 1984-2018 data and show that the talent or ability of sell-side financial analysts affects a covered firm’s information environment—more so than the simple number of analysts covering a firm. We find that while analysts in general produce market and industry-level information, high-ability analysts contribute more firm-specific information. Firms covered by high-ability analysts experience significantly less insider trading prior to positive earnings news. Results only reside in opportunistic (not routine) trades. When an analyst initiates (terminates) coverage we find decreased (increased) subsequent insider trading. Both changes are primarily driven by analyst talent. Analyst ability also negatively relates to insider trading profitability.

Keywords: Analyst talent, Information asymmetry, Insider trading, Sell-side financial analyst, Earnings announcements

JEL Classification: G14

Suggested Citation

Dang, Chongyu and Foerster, Stephen R. and Li, Zhichuan Frank and Tang, Zhenyang, Analyst Talent, Information, and Insider Trading (December 8, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2916307 or http://dx.doi.org/10.2139/ssrn.2916307

Chongyu Dang

Founder Securities ( email )

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

Zhenyang Tang (Contact Author)

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

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