Finance Professor Sinan Gokkaya’s paper helps institutional and retail investors analyze stock ‘top picks’

Professor Sinan Gokkaya’s research paper “Who Benefits from Analyst ‘Top Picks’?” was featured in two outstanding outlets.

Dr. Sinan Gokkaya’s October 2020 paper titled “Who Benefits from Analyst ‘Top Picks’?” was featured by the National Bureau of Economic Research (NBER), a leading nonpartisan organization for economic issues in the United States, and featured in Institutional Investor Magazine, a premier outlet for institutional investors.

Dr. Gokkaya, the JP Morgan Chase Professor of Finance and Presidential Teacher in the College of Business, worked with coauthors Dr. Justin Birru (The Ohio State University), Dr. Xi Liu (Miami University), and Dr. René M. Stulz (The Ohio State University) for two years on this research, which examined analysts’ top pick designations. Top picks are widely regarded as stocks that will yield the best performance for investors, but Gokkaya and the other researchers discovered that might not always be the case depending on analysts’ motives.

“We believe our research helps stock market participants understand stock recommendations and analyst research better and suggests all investors should do their homework before blindly following analysts’ top picks as suggested by the U.S. Securities and Exchange Commission (The SEC),” Dr. Gokkaya explained.

They found that even though top picks are more likely to be investment banking clients, they have greater investment value, attract greater financial press and investor attention, and lead to more trading. These findings suggest that bad top picks are more likely to be influenced by strategic objectives and have adverse consequences for investors and the analysts who make these designations. Institutions discern between good and bad top picks at the time of their announcement.

Dr. Gokkaya and his coauthors chose to research this topic because of the extensive financial press and investor attention surrounding top pick stock selections of Wall Street analysts. These findings are especially beneficial and relevant for institutional and retail investors when they are allocating capital across stocks.

“Dr. Gokkaya has a history of producing high quality research and his latest work is no exception,” said Dr. Travis Davidson, chair of the finance department. “The fact that his findings have been publicized by both academic and practitioner outlets speaks to their broad impact.This research is important because we live in a world of information overload, and wading through the information to find good advice can be difficult.While analysts are not always correct and should not be followed blindly, we now know how to find an analyst’s best investment idea and that these ideas are profitable more often than not.”