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  • Accounting Review

Man Versus Machine: Do Robo-Analysts Outperform Traditional Research Analysts

By: Braiden Coleman, Kenneth J. Merkley and Joseph Pacelli
  • Format:Print
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Abstract

We provide the first comprehensive analysis of the properties of investment recommendations generated by “Robo-Analysts,” which are human-analyst-assisted computer programs conducting automated research analysis. Our results indicate that Robo-Analyst recommendations differ from those produced by traditional “human” research analysts across several important dimensions. First, Robo-Analysts produce a more balanced distribution of buy, hold, and sell recommendations than do human analysts and are less likely to recommend “glamour” stocks and firms with prospective investment banking business. Second, automation allows Robo-Analysts to revise their recommendations more frequently than human analysts and incorporate information from complex periodic filings. Third, while Robo-Analysts’ recommendations exhibit weak short-window return reactions, they have long-term investment value. Specifically, portfolios formed based on the buy recommendations of Robo-Analysts significantly outperform those of human analysts. Overall, our results suggest that automation in the sell-side research industry can benefit investors.

Keywords

Fintech; Analysts; Robo-analysts; Investment Recommendations; Investment; Technology; Performance

Citation

Coleman, Braiden, Kenneth J. Merkley, and Joseph Pacelli. "Man Versus Machine: Do Robo-Analysts Outperform Traditional Research Analysts." Accounting Review (forthcoming).

About The Author

Joseph Pacelli

Accounting and Management
→More Publications

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More from the Authors
  • Do Job Seekers Value Diversity Information? Evidence from a Field Experiment By: Joseph Pacelli, Jung Ho Choi, Kristina M. Rennekamp and Sorabh Tomar
  • Dirty Money: How Banks Influence Financial Crime By: Joseph Pacelli, Janet Gao, Jan Schneemeier and Yufeng Wu
  • Does the Freedom of Information Act Foil the Securities and Exchange Commission's Intent to Keep Investigations Confidential? By: Braiden Coleman, Kenneth Merkley, Brian Miller and Joseph Pacelli
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