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To get a good analyst’s forecasts, find one that shares the name with your CEO

Christian Fernsby |
Scietists examined whether the sharing of a first name between a security analyst and the CEO of a covered firm affects the accuracy of the analyst’s forecasts.


Omri Even-Tov from Haas School of Business, UC-Berkeley; Kanyuan Huang from UCLA Anderson School of Management; and Brett Trueman from UCLA Anderson School of Management conjecture that the greater affinity between an analyst and CEO that arises due to the sharing of a first name will lead to a greater willingness on the part of the CEO to share private information with the analyst and that this, in turn, will manifest itself in increased forecast accuracy.

Consistent with that, they find that the accuracy of the forecasts issued by those analysts who share a first name with a covered firm’s CEO is higher than those of analysts who do not share a first name.

They find matched analyst forecast superiority to be concentrated among those analysts with less common first names, perhaps because the salience of sharing a first name is lower for analysts with more common names.

"Supportive of our results, we find that at the time of CEO turnover the forecast accuracy of previously matched analysts who are now unmatched falls relative to that of analysts who were unmatched both pre and postturnover, while the forecast accuracy of analysts who become matched increases relative to that of those who remain unmatched.

"Consistent with the notion that increased forecast accuracy is due to the sharing of private information between a CEO and a matched analyst, we also find that forecasting superiority is greater in situations where there is greater information asymmetry.

"Analysts consider many factors when deciding whether to initiate coverage of a firm.

"Obvious ones are the extent to which coverage will lead to future investment banking business and the amount of trading commissions that it will generate.

"Our research suggests a less obvious, but still important, factor the CEO’s first name.

"Choosing a firm with a CEO who shares the analyst’s first name could lead to an informational advantage over the other analysts covering that firm."


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