TY - JOUR
T1 - Common Analysts
T2 - Method for Defining Peer Firms
AU - Kaustia, Markku
AU - Rantala, Ville
N1 - Publisher Copyright:
© 2020 Cambridge University Press. All rights reserved.
Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2020
Y1 - 2020
N2 - We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts' coverage choices reflect other aspects of firm relatedness such as business model. We find that the analyst-based method produces substantially more homogenous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.
AB - We develop a method for defining groups of peer firms on the basis of joint analyst coverage. Besides industry boundaries, analysts' coverage choices reflect other aspects of firm relatedness such as business model. We find that the analyst-based method produces substantially more homogenous groups of firms compared to common industry classifications, and has a number of other desirable properties. The paper has two broader implications. First, it demonstrates the advantages of a self-organizing approach to classification, as opposed to a hierarchical system. Second, it illustrates a new positive information production externality generated by the institution of security market analysis.
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U2 - 10.1017/S0022109020000514
DO - 10.1017/S0022109020000514
M3 - Article
AN - SCOPUS:85090157478
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
ER -