Financial analysts are rewarded for looking smart in their reports rather than actually being right about the future.
April 1, 2026
Original Paper
What Makes a Star Analyst? Evidence on Industry Expertise from 1.2 Million Analyst Reports
SSRN · 6496619
The Takeaway
An AI analysis of 1.2 million reports found that an analyst's 'industry knowledge' score is seven times more predictive of achieving 'Star' status than their actual forecast accuracy. The financial industry effectively prioritizes the linguistic signal of expertise over the empirical reality of correct predictions.
From the abstract
We develop novel text-based measures of sell-side analyst industry knowledge and report quality by applying a large language model evaluation pipeline to 1.22 million industry reports from 40 major brokerage houses over 2012 to 2024. Each report is scored across 18 dimensions capturing both general research quality and specific forms of industry expertise. We validate our measures by showing that they are substantially more predictive of <i>Institutional Investor</i> All-Star status than traditi