Who was informative? Performance of foreign and local analysts’ stock recommendations during the Asian financial crisis

• Examine the performance of foreign and local analysts during the Asian financial crisis.
• More informative group should issue more valuable recommendations.
• Foreign analysts’ buy recommendations were more informative.
• Local analysts’ sell recommendations were more informative.
• Neither of the two groups holds complete information advantage over the other.

This paper examines the performance of foreign and local analysts’ stock recommendations in Indonesia, Malaysia, Thailand, and South Korea during the financial crisis of 1997–1998. Unlike most of the prior studies, our results provide strong evidence that neither of the two groups held a complete information advantage over the other during the period of crisis. Using a large dataset of analysts’ recommendations, we show that foreign analysts’ buy recommendations were more informative than local analysts’ buy recommendations, while the opposite held for sell recommendations, i.e. local analysts’ sell recommendations were more informative than foreign analysts’ sell recommendations. Our results provide evidence that neither of the frequently advanced explanations regarding relative performance of foreign and local analysts hold during the period of extreme uncertainty.

Figure optionsDownload as PowerPoint slide