| Summary: | Investors are often willing to pay a larger compensation for equity research from renowned analysts or prestige brokerage firms. However, the added value of their expertise is heavily debated. We build on existing literature by looking at how forecasting abilities and market reaction to recommendations may vary according to the reputation of the issuing analyst and brokerage firm. We examine earnings estimation errors and abnormal returns following recommendation revisions across different samples. We find interesting and somewhat puzzling results. We show that star analysts and analysts from top brokerage firms do not consistently produce more accurate earnings forecasts; however, their recommendation revisions are mostly followed by a significantly larger market reaction. In contrast, recommendation revisions issued by star analysts who work at top brokerage firms are followed by smaller short-term abnormal returns, although they present higher forecasting abilities.
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