Do Differences in Analyst Quality Matter for Investors Relying on Consensus Information?

This study investigates whether there are economic benefits for investors in analyzing differences in analyst quality. Although high-quality analysts’ average forecast is more accurate than the consensus forecast in firms with a large analyst following, the benefits of using high-quality analysts’ average forecast are not economically significant. The value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts’ forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns, including the post-earnings announcement drift that occurs only when high-quality analysts are highly uncertain about firm performance