NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts

Kee-Hong Bae, Rene M. Stulz, Hongping Tan

NBER Working Paper No. 11697
Issued in October 2005
NBER Program(s):Asset Pricing

This paper examines whether analysts resident in a country make more precise earnings forecasts for firms in that country than analysts who are not resident in that country. Using a sample of 32 countries, we find that there is an economically and statistically significant analyst local advantage even after controlling for firm and analyst characteristics. The importance of the local advantage is inversely related to the quality of the information provided by firms. In particular, the local advantage is high in countries where earnings are smoothed more, less information is disclosed by firms, and firm idiosyncratic information explains a smaller fraction of stock returns. The local advantage is also negatively related to market participation by foreign investors and by institutions and positively related to holdings by insiders. U.S. investors underweight a country's stocks more in their portfolios if that country has a higher analyst local advantage.

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Document Object Identifier (DOI): 10.3386/w11697

Published: Bae, Kee-Hong, Rene M. Stulz, and Hongping Tan. "Do local analysts know more? A cross-country study of performance of local analysts and foreign analysts." Journal of Financial Economics 88, 3 (2008): 581-606. citation courtesy of

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