5. Are Stars Worth Following? Measuring the Target Price Predictive Ability of Star Analysts in an Emerging Market

Abstract

This article investigates whether star analysts, identified as the best stock pickers by Thomson Reuters’ StarMine Awards, have superior target price forecasts than non-star analysts in an emerging market. The difference between star and nonstar analysts is the former’s use of attention-seeking tactics by issuing aggressive target price forecasts. Empirical results indicate that the performance of star analysts is not significantly different from that of non-star analysts in the short term or at the end of the forecast horizon. However, star analysts have better short-term performance than non-star analysts for a sub-set of technology-driven, high-growth stocks which have higher liquidity and rapid incorporation of information. In essence, star-analysts have better short-term predictive ability than non-star analysts for stocks with higher trading volume and better flow of information. The key finding of this study is that investors in emerging markets like India have limited advantage in following target price forecasts issued by star analysts.