Book Reviews

Even though all three authors of this manuscript are recognized for their seminal contributions to the research on sell-side analysts and the properties and impact of these analysts’ research and forecasts, the manuscript is not a review of this rich literature. Rather, it focuses on the evidence pertinent to the questions of ‘‘whether, how, and under which circumstances sellside research contributes to the functioning of capital markets’’ (p. 3). The authors propose that, despite the vast body of empirical research on the information produced by financial analysts and their role in the capital markets, there are important unanswered questions. The authors provide numerous suggestions for future research to address these questions, but at the same time are careful to alert researchers to potential pitfalls and difficulties in dealing with them. The manuscript contains 11 relatively brief chapters. The introductory chapter provides a review of the players in the capital markets and a roadmap of the manuscript, and the last chapter contains a summary. Each of the other nine chapters provides the reader with a different aspect of the work of sell-side analysts, ranging from the institutional and regulatory environment in which the analysts operate, through the information sources they use and the products they generate, to their role in the capital markets and the effect of recent regulatory changes on their activities. The authors add their own insights to the discussions and further highlight areas in which the empirical evidence is scant as having potential for future research. For example, in Chapter 4 (‘‘Information Sources’’), after describing the diversified sources of information used by analysts, the authors discuss the evidence on the effect of the extent of information about the firm on the ‘‘supply’’ of analysts’ coverage and products. They point to the reverse effect, namely, the effect of the ‘‘demand’’ by analysts for information and a firm’s propensity to supply it, and suggest the examination of ‘‘more linkages among analyst coverage, information, and benefits to firms and capital markets’’ (see p. 24) as an area of promising future research. Another example from this chapter is the discussion of how analysts are monitored and evaluated by the market and by their employers. Direct evidence for this question is difficult to obtain. There is, however, an extensive body of empirical studies that address the question indirectly. The conclusions reached by this research are inferred from associations between analysts’ performance measures and an assortment of explanatory variables (e.g., between accuracy and turnover [see Mikhail, Walther, and Willis 1999], between achieving all-star status and stability and consistency in the forecast error [see Hilary and Hsu 2013], or between success in being hired by a prestigious brokerage house and forecast accuracy and bias [see Hong and Kubik 2003]). The authors note some direct evidence regarding how banks evaluate their analysts’ performance (which is based, in part, on the number of downloads of their research by clients [see p. 17]). Even though this evidence is merely anecdotal, it adds to our understanding of how analysts’ performance is evaluated. More anecdotal evidence of this nature as well as evidence in the form of survey results, which is arguably more powerful, are needed to supplement the archival research. Below, I review selected chapters of the manuscript. A chapter that I particularly like is Chapter 3, ‘‘Day-to-Day Responsibilities and Career Trajectory.’’ It is not directly related to the main theme of the manuscript (the role of analysts in making the capital market efficient) but rather to the ‘‘workplace scene’’ of sell-side analysts. In this chapter, the authors describe the daily routine and schedule of sell-side analysts, their typical career path, their compensation structure, the hierarchy of their potential employers, the different ranks of seniority in this position, and the career of sell-side analysts after they depart this profession. Even though I have conducted research on sell-side analysts, some of the information in this chapter was new to me. For example, I did not know that the typical analysts’ weekly workload does not consist of five ‘‘9 to 5’’ working days but rather of six to seven working days that often extend from