Stanimir Markov

Broker-Hosted Investor Conferences

Broker-hosted investor conferences are invitation-only events that allow select clients to interact with firm management. We find that firms that attend investor conferences tend to have high intangible assets, consistent with greater demand for management access among hard-to-value firms. Using a sample of institutional transactions, we find that investor conferences have a significant effect on broker revenues in the days following the event, and the effect is larger when conference disclosures are more informative, which suggests investors reward brokers for facilitating informative disclosures. Our results indicate that brokerage research extends beyond the distribution of published reports and establish investor conferences as a distinct research service.

The Value of Crowdsourced Earnings Forecasts

Crowdsourcing—when a task normally performed by employees is outsourced to a large network of people via an open call—is making inroads into the investment research industry. We shed light on this new phenomenon by examining the value of crowdsourced earnings forecasts. Our sample includes 51,012 forecasts provided by Estimize, an open platform that solicits and reports forecasts from over 3,000 contributors. We find that Estimize forecasts are incrementally useful in forecasting earnings and measuring the markets expectations of earnings. Our results are stronger when the number of Estimize contributors is larger, consistent with the benefits of crowdsourcing increasing with the size of the crowd. Finally, Estimize consensus revisions generate significant two-day size-adjusted returns. The combined evidence suggests that crowdsourced forecasts are a useful supplementary source of information in capital markets.Recent research has begun to question the importance of forecasts to sell-side analysts. Prior research established the co-existence of longer horizon optimism and short-term pessimism in sell-side forecasts. These factors motivate us to explore a new phenomenon – crowdsourcing, as an alternative source of forecasts. We obtain revenue and earnings forecasts from estimize, an entity which crowdsources and distributes these forecasts online. We find the estimize forecasts are, on average, as accurate as the sell-side. Further, although our results show the estimize forecasts to be relatively more optimistic, on average, and particularly in short horizons, our analysis suggest it is at least partially explained by the extreme pessimism of the sell-side’s final forecasts. Our market test confirms support for the superiority of estimize’s short-term forecasts. Our results provide support for the value of crowdsourced forecasts. JEL Classification: G28; G29; M41; M43

Come on Over: Analyst/Investor Days as a Disclosure Medium

Our study introduces analyst/investor days, a new disclosure medium that allows for private interactions with influential market participants. We also highlight interdependencies in the choice and information content of analyst/investor days and conference presentations, a well-researched disclosure medium which similarly allows for private interactions. Analyst/investor days are less frequent but with longer duration and greater price impact than conference presentations. They are mostly hosted by firms that already have opportunities to interact with investors at conferences, but whose complex and diverse activities make the short duration and rigid format of a conference presentation an imperfect solution to these firms’ information problems. Analyst/investor days and conference presentations tend to occur in different quarters, consistent with their competing for the time and attention of senior management. When these two mediums are scheduled in close temporal proximity to each other, analyst/investor days diminish the information content of conference presentations but not vice versa, consistent with managers’ favoring analyst/investor days over conference presentations as a disclosure medium.

Analyst Tipping: Additional Evidence

We investigate whether the price run-up in a company’s stock prior to the initiation of analyst coverage with a favorable recommendation is related to the occurrence of an analyst-hosted invitation-only investor conference attended by the company. We document an average abnormal return of 2.41% (0.91%) during the twenty days prior to analyst initiations when conferences are hosted by initiating (non-initiating) analysts and 0.54% in the absence of these conferences. The abnormal returns are concentrated on conference days at 0.58% (0.17%) when conferences are hosted by initiating (non-initiating) analysts. Further, the price run-up and conference day returns predict the level of initiating recommendations. We conclude that investor conferences are significant venues where select investors obtain initiation-related information from initiating analysts or participating companies that other investors obtain when the initiations are publicly announced. Our conclusions are consistent with anecdotal evidence that securities firms communicate their research increasingly with the most profitable clients.

Sell-Side Debt Analysts and Debt Market Efficiency

We explore sell-side debt analysts’ contributions to the efficiency of securities markets. We document that debt returns lag equity returns less when debt research coverage exists, which is consistent with debt analysts facilitating the process by which available information is impounded in debt prices. The effect of debt research on the debt market’s lag is incremental to, but comparable in magnitude to, hedge fund ownership’s effect. No such effect exists for credit rating agencies. We also find that the dissemination of debt reports has an immediate effect on return volatility in both markets, which is consistent with debt analysts providing new information to securities markets. Increased return covariation suggests that this information impacts the pricing of debt and equity in the same direction. A large percentage of debt reports do not induce any immediate debt market return reaction but do induce an equity return reaction, which is consistent with new information being provided despite the absence of a debt market reaction. Finally, there is a systematic variation in the debt market’s trading and return reactions to debt research. Timely reports and those by high-reputation brokers induce a quicker trading response, thus enhancing liquidity, whereas only timely reports induce a greater return response. This study illuminates the institutional underpinnings of debt market efficiency, and it has important implications for information content tests in the debt market, where trading is limited. This paper was accepted by Mary Barth, accounting.

Determinants and Consequences of Information Processing Delay: Evidence from the Thomson Reuters Institutional Brokers’ Estimate System

We present new evidence that highlights the role of information intermediaries in the distribution and processing of earnings estimates in capital markets. We find that the time taken to activate an analysts earnings forecast in the Thomson Reuters Institutional Brokers’ Estimate System is related to measures of investor demand for timely information processing, processing difficulty, and limited attention. Furthermore, we find that forecast announcement returns are muted and post-announcement drift is magnified for forecasts with longer unexpected activation delay and that market inefficiency is concentrated in neglected stocks and potentially exploitable. Finally, analyzing intraday returns, we find that activations facilitate price discovery.

The Market’s Assessment of the Probability of Meeting or Beating the Consensus

We investigate to what extent the market uses information that is predictive of whether earnings will meet or beat the analyst consensus forecast of earnings (MBE henceforth): measures of a firm’s incentives to engage in MBE behavior, measures of constraints on MBE, measures of past MBE practices by firm and industry, and other variables. Using the Mishkin test framework and Bonferroni-adjusted p-values, we document that of a total of 21 variables, the market inefficiently uses information in one difficulty measure and four other predictors, suggesting that strong empirically and theoretically grounded relationships concerning MBE behavior are more likely to be unraveled by the market. We further show that a portfolio based on the difference between the objective MBE probability and the market-assessed MBE probability generates significant abnormal returns. This return predictability is distinct from known sources of predictability and cannot be fully explained by arbitrage risk or transaction costs.

Does Crowdsourced Research Discipline Sell-Side Analysts?

We examine whether increased competition stemming from technological innovation disciplines sell-side analysts. We document a decline in short-term forecast bias for firms added to Estimize, an open platform that crowdsources short-term earnings forecasts, relative to matched control firms; this decline is greater when (1) existing sell-side competition is smaller, (2) earnings uncertainty is higher, and (3) Estimize coverage is less biased and more accurate. We also document an increase in short-term forecast accuracy and representativeness. Finally, we find no change in bias for longer-horizon forecasts or recommendations, suggesting competition from Estimize rather than broad economic forces drives our results.

Determinants and consequences of information processing delay: Evidence from the Thomson Reuters Institutional Brokers’ Estimate System

We present new evidence that highlights the role of information intermediaries in the distribution and processing of earnings estimates in capital markets. We find that the time taken to activate an analysts earnings forecast in the Thomson Reuters Institutional Brokers’ Estimate System is related to measures of investor demand for timely information processing, processing difficulty, and limited attention. Furthermore, we find that forecast announcement returns are muted and post-announcement drift is magnified for forecasts with longer unexpected activation delay and that market inefficiency is concentrated in neglected stocks and potentially exploitable. Finally, analyzing intraday returns, we find that activations facilitate price discovery.