Core Specialization, Forecast Accuracy, and the Market for International Analysts

We investigate the relationship between core specialization, earnings forecast accuracy, and the employment prospects of international equity analysts over the period 1996-2002. We find that forecast accuracy is higher for stocks that are part of the core of an analyst's research portfolio. Further, analysts provide more accurate forecasts when core stocks account for a larger fraction of their portfolios, and analysts whose entire portfolio is comprised of core stocks provide less accurate forecasts than those for whom non-core stocks account for a relatively small fraction of their portfolio. With regards to employment prospects, we find that the market for international analysts rewards analysts for higher forecast accuracy through more favorable employment outcomes, and this relation is more sensitive to performance in the core than in the non-core. Finally, for the same level of performance, we document that an analyst is less likely to get a relatively favorable job outcome if the core size is larger. Our analysis suggests that forecast accuracy varies systematically across components of analysts' research portfolios, and some of this variation is attributable to the manner in which analysts are evaluated by the market for international analysts