| This study tested the utility of protocol analysis for elucidating decision making among security analysts. Eight analysts read descriptions of four companies in four different industries and provided "thinking aloud" comments (protocol data). They then estimated a range of values and associated cumulative probabilities for the common stock six months in the future. The research design consisted of a 2 x 2, repeated measures design in which two factors (variability in the market place and variability in technology) were crossed to make up the four cases.;The variables used by experienced analysts were compared with lesser experienced analysts. Four variables were used by the experienced analysts: liquidity, return on assets, domestic sales, and net income from discontinued operations. When analyzing highly used variables, the experienced analysts were more likely to compare them with some internal norm. Less experienced analysts used variables associated with cash flows.;Analysis of conceptual operator usage by security analyst indicates that not only are some used in all cases by most or all of the analysts, but that some are case specific.;Although available, none of the analysts requested the beta for any of the companies or listed it as missing information. All analysts did request the relative PE which I hypothesize substitutes for the beta in Sharpe's Capital Asset Pricing Model (CAPM).;Analysis of the knowledge states indicated that a majority of the analysts used forty-two of the 143 available variables. Variables used by all analysts not reported in cited studies are S&P 500, competitors, general economy, company PE, relative PE, new products and historical industry information. A set of variables were used in specific cases even though applicable to all.;Finance courses should include a discussion of the relative PE, and the use of earnings in place of cash flows. C.F.A. course work and brokerage in house training should include discussions of the relative PE, variables previously listed, and how to summarize findings during analysis. Other implications are also discussed. Future research includes substitution of the relative PE for the beta in the CAPM. |
