Analyst Sentiment as a Factor Consideration

Abstract

An equity analyst’s opinion of stocks summarizes how a variety of different forces (such as geopolitical, macroeconomic, country, industry, and company-specific) and their interaction may affect the future performance of a company. In this article, we constructed an analyst-sentiment factor that tracks changes in analyst expectations, and then examined its relationship with global equity performance. We also sought to define the analyst-sentiment factor and learn about its stability and performance. Our analysis revealed that analyst sentiment has been a robust and differentiated investment factor with strong associated risk premiums. It exhibited unique characteristics and information relative to traditional equity style factors such as value, quality, and momentum.