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On the Structure of Analyst Research Portfolios and Forecast Accuracy
Author(s) -
KINI OMESH,
MIAN SHEHZAD,
REBELLO MICHAEL,
VENKATESWARAN ANAND
Publication year - 2009
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/j.1475-679x.2009.00338.x
Subject(s) - diversification (marketing strategy) , endogeneity , portfolio , context (archaeology) , revenue , econometrics , economics , financial economics , business , accounting , marketing , geography , archaeology
This study provides insights into the forces and constraints that shape analyst research coverage along country and sector dimensions and the impact of the structure of an analyst's portfolio on forecast accuracy. We find that analyst specialization by country and sector is sensitive to the extent to which firms within a country or sector and firms across country‐sectors are exposed to common economic forces, the potential for revenue generation, and broker culture. Our tests indicate that existing research on the relation between analyst portfolio structure and forecast accuracy may suffer from an endogeneity bias. We use our analysis of analyst specialization to develop controls for this bias. Once we employ these controls, we find that country diversification is associated with superior forecast accuracy. However, the relation between sector diversification and forecast accuracy is context‐specific. Specifically, sector diversification enhances forecast accuracy in an international context, while it detracts from forecast accuracy in a domestic U.S. context.