Airbrushing analyst history

Hat-tip to Aled for alerting me to this rather interesting paper. Here's the abstract:

We document widespread ex post changes to the historical contents of the I/B/E/S analyst stock recommendations database. Across a sequence of seven downloads of the entire I/B/E/S recommendations database, obtained between 2000 and 2007, we find that between 6,594 (1.6%) and 97,579 (21.7%) of matched observations are different from one download to the next. The changes, which include alterations of recommendation levels, additions and deletions of records, and removal of analyst names, are non-random in nature: They cluster by analyst reputation, brokerage firm size and status, and recommendation boldness. The changes have a large and significant impact on the classification of trading signals and back-tests of three stylized facts: The profitability of trading signals, the profitability of changes in consensus recommendations, and persistence in individual analyst stock-picking ability.

Caveat emptor

At home sick today, so in lieu of proper blogging here's a rather cynical snippet from this:

"Wall Street makes a lot of money selling stocks, and it prospers by having a set of highly paid individuals whose primary role is to make public statements to the effect that the prices of the shares of individual firms will increase; they're like the shills in front of the side-shows at carnivals whose role is to persuade the public to buy tickets to see the sword swallowers and the hermaphrodites. Stocks increase in price twice as often as they fall in price, so that even without any special skills the odds are that the 'market strategists' will be right twice as often as they are wrong. The market strategists typically are reluctant to indicate that stock prices as a group will decline and very rarely suggest that the stock of an individual firm will decline (because the top executives of that firm would become furious and threaten to never bring any underwriting business to the investment bank again). If stock prices decline when the pitch has been that they will increase and the touts become an embarrassment to their employers, well they've been well paid and they're expendable and, hey, it's business. It's not had to find replacements."