A stochastic model of superstardom: evidence from institutional investor's All-American Research Team

• Published in: Review of financial economics Vol. 9; no. 1; pp. 43 - 53
• Main Authors: Cox, Raymond A.K., Kleiman, Robert T.
• Format: Journal Article
• Language: English
• Published: New Orleans, La Elsevier Inc 2000; Elsevier; Elsevier Advanced Technology Publications; University of New Orleans, Division of Business and Economic Research; Elsevier Science Ltd
• Series: Review of Financial Economics
• Subjects: Evaluation; Financial analysis; Financial analysts; Securities analysis; Securities dealers; Securities industry; Security analysts; Services; Stochastic models; Stocks; Studies; Superstardom; Yule; United States; Superstardom; Security analysts; Yule
• ISSN: 1058-3300; 1873-5924
• DOI: 10.1016/S1058-3300(00)00016-1

In this paper, we investigate the superstar phenomenon in the security analysis industry through an analysis of the probabilistic mechanism by which security analysts are selected for inclusion in
Institutional Investor's All-American Research Team (II AART). Specifically, we examine whether the statistical distribution of the number of first team appearances by security analysts conforms to the Yule distribution, which implies that luck rather than differential talent explains success. This is an important issue since an analyst's position on the AART is an important determinant of the individual's pay and reputation. Our research results reject the Yule distribution. Thus, consistent with previous empirical studies by Stickel [Stickel, S. E. (1992). Reputation and performance among security analysis. J Finance 47, 1811–1836; Stickel, S. E. (1995). The anatomy of the performance of buy/sell recommendations. Financ Anal J 51, 25–39] and Brown and Chen [Brown, L. D., & Chen, D.M. (1991). How good is the All-American Research Team in forecasting earnings. J Bus Forecast 9, 14–18], we find that selection to the AART can be attributed to skill rather than luck.