Do Stars Shine? Comparing the Performance Persistence of Star Sell-Side Analysts Listed by Institutional Investor, the Wall Street Journal, and StarMine

We investigate the profitability persistence of the investment recommendations from analysts listed in four different star rankings, Institutional Investor magazine, StarMine's “Top Earnings Estimators” and “Top Stock Pickers”, and The Wall Street Journal, and show the predictive power of each evaluation methodology. We found that only Buy and Strong Buy recommendations from the entire group of Star analysts outperform those of the Non-Stars in the year after election, while Sell and Strong Sell recommendations performed as those of the Non-Stars. We document that the highest average monthly abnormal return of holding a long-short portfolio, 0.97 percent, is obtained by following the recommendations of the group of star sell-side analysts rated by StarMine's “Top Earnings Estimators” during the period from 2003-2014. Since earnings are one of the main drivers of stock prices, the results obtained are in line with the notion that focusing on superior earnings forecasts is one of the top requirements for successful stock picks