Of leaders and followers-An econometric analysis of equity analysts and stock market investors

We measure the information content of publicly available analyst consensus forecasts for 1‐year‐forward earnings per share based on two well‐established price discovery measures drawn from the area of market microstructure research. Employing a 36‐year sample of large U.S. companies listed in the S&P 100 Index, we compute (a) Hasbrouck's information shares and (b) Gonzalo and Granger's common factor component shares to measure the relative contribution that market participants and financial analysts working on the sell side of the market have in the process of value discovery. We find that although these analysts are far from leading the market, they have a small but significant share in the process of value discovery, amounting to 4.6% (Hasbrouck) and 18.0% (Gonzalo and Granger), on average. This share is persistent over time but varies significantly in the cross section. We identify the level of analyst coverage and company age as drivers of this heterogeneity.