Analyst Talent, Information, and Insider Trading
48 Pages Posted: 14 Feb 2017 Last revised: 28 Nov 2020
Date Written: December 8, 2020
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: Suggested Citation