Positives for analysts who push the negative

WALL STREET analysts may be less biased towards favourable coverage than assumed, according to academic research that finds that pessimistic recommendations attract more press attention – and this helps the authors’ careers.

Analysts, like journalists, have been accused of cheerleading the dotcom boom, missing scandals such as Enron and not spotting the approach of the last global financial crisis. This prompted academics to conclude that analysts’ desire to retain access to management or secure underwriting fees for their firms makes them habitual optimists.

Yet a study by Lynn Rees, Nathan Sharp and Brady Twedt of Texas AM University says analysts’ incentives “may be less one-sided than previously thought”.

The study tracked sell-side financial analysts quoted in 2,024 articles about North American companies between 2002 and 2009.

The database from Media Tenor International, a media research institute, comprised articles from the Financial Times, Barron’s, Business Week, Forbes and the Wall Street Journal.

The researchers found that analysts with unfavourable recommendations on stocks they covered were more likely to be quoted than those with favourable recommendations. In turn, they discovered “significant career benefits” for analysts who receive publicity in the business press.

“The more maverick analysts stand out from the pack,” said Mr Twedt. – (Copyright The Financial Times Limited 2011)