Star Analysts’ Halo Effect

Previous literatures have found that there are strong relationship between analysts’ reputation and their prediction and recommendation performances, and they interpreted reputation as research abilities. But in the real world, star analysts are involved in many scandals, like manipulating stock price. This paradox makes me rethink the relationship between analysts’reputation and their abilities. This paper argues that in addition to abilities, there must be other factors that affect analysts’recommendation performances.These factors include star analysts’influences on stock prices, which is called stars’Halo Effect. In order to investigate such effect, this paper first holds analysts’ abilities constant via comparing stars’reports after election with before election. This paper finds that compared to reports before election, stars perform better after election. Furthermore, when comparison interval is shortened to3month, which is supposed during which inside information and more resources are not available to stars, this paper finds that stars also perform better after election. Finally, this paper finds that compared to nonstars, stocks in stars’reports have larger momentum and abnormal volume. These above results suggest that differences in performances can be predicted by stars’influences on market. That is, there exits Halo Effect.There are three major contributions in this paper. First, this paper’s findings in differences in recommendation performances make up the relevant research in China. Second, this paper highlights a new interpretation between stars’ reputation and their recommendation performances. Finally, this paper’s findings can be directly applied to investment when investors are looking up analysts’ reports.