Academic Research Shows Estimize Responsible For 63% Decrease In Sell-Side Pessimism

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Academic Research Shows Estimize Responsible For 63% Decrease In Sell-Side Pessimism

Everyone knows the game that sell side analysts play, it’s not a secret and never has been. In order to curry favor for their corporate access and investment banking businesses, sell side analysts sandbag their earnings estimates. After the tech bubble crash, the government made a half-hearted effort (at best) to limit the bias. Not only did the government fail (see: “Did Analyst Forecast Accuracy and Dispersion Improve after 2002 Following the Increase in Regulation?”, CFA Institute), it sat and watched as another round of analysts at the ratings agencies enabled the credit crisis to take place. Over and over, around and around we go, the same game, the same problem.

Sell-Side Pessimism

Today I can say with undeniable evidence, the game is over as a result of our work at Estimize. In their paper, “Does Crowdsourced Research Discipline Sell Side Analysts” Russell Jame from the University of Kentucky along with his colleagues find a 63% drop in forecast pessimism over a three year period as the result of shaming by the more accurate and representative crowdsourced Estimize data set. They state, “competition can impact analysts’ reputational concerns by increasing the likelihood that their bias will be exposed to the market. For example, a forecast from an analyst who has stronger incentives to be unbiased can help discipline other analysts by serving as a benchmark and helping investors unravel incentive-driven biases.”

Bonhoeffer Fund July 2022 Performance Update