Research finds female analysts are more accurate, make bolder calls

A study published in the Journal of Accounting Research says that female analysts issue bolder and more accurate forecasts than their male counterparts.

The author, Dr. Alok Kumar, came to this conclusion after examining over 2 million stock forecasts made by 17,240 analysts covering a total of 13,636 stocks. Kumar identified the gender of analysts using their full names. (It isn’t known how he sorted names that were gender neutral.)

“The female–male accuracy differences are robust and cannot be explained by non-random distribution of female analysts across stocks, industries, or brokerage firms” the author wrote.

However, these findings have nothing to do with the natural investing ability of men versus women. Multiple studies show that female investors are actually more risk-averse and less competitive in their investing behavior than men.

So what is the explanation?

The answer lies in the fact that the financial services industry remains a very male-dominated profession. Over the entire 1983 to 2005 sample period, Kumar found that just 16 percent of all analysts were female. This number peaked in 2001 at 20 percent.

Even now, analyst ranking service TipRanks only shows 7 female analysts in its list of the top 100 Wall Street analysts of 2017.

This simple fact lead Kumar to the crux of the study: “Overall, due to a self-selection process, only women with above average abilities would choose the analyst profession and, consequently on average, female analysts are likely to be more skillful than male analysts.”

These are women who actively choose to pursue a career in the financial services industry. Meanwhile their “superior forecasting abilities” allow them to compete more effectively with male analysts.

Consistent with his self-selection hypothesis, female analysts tend to cover larger stocks with high institutional ownership even when they are less experienced. Similarly, female analysts enjoy a higher probability of moving to a high-status brokerage firm rather than being demoted.

But, crucially, are investors aware of this difference in gender performance?

Yes, to a degree. Stock market participants do have a greater reaction to the stock rating revisions made by female analysts. “They respond more strongly to the forecast revisions by female analysts even though those analysts get less media coverage” wrote Kumar.

However, he noted that the market’s reaction is “incomplete” due to a strong post-revision drift.