Graduation Year

2026

Date of Submission

4-2026

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

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Eric Hughson

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2026 Vishnu S Dandi

Abstract

This paper examines whether financial markets exhibit a hot hand fallacy in their assessment of sell-side analyst credibility. Using 121,242 I/B/E/S recommendation events from 1993 to 2024, the analysis studies how market reactions vary with analysts’ recent observable performance, measured over the T-24 to T-12 scorecard window, the most recent fully resolved twelve-month track record available at the recommendation date. A within-analyst fixed effects design isolates dynamic credibility updating from permanent differences in analyst quality. Recommendations from analysts in the top performance quartile generate announcement reactions 46.6 basis points larger than those of the same analyst during average-performance periods, increasing to 67.4 basis points under a Bayesian shrinkage classification. This premium subsequently reverses in the CAR(6,60) window, consistent with initial overreaction. A calibration exercise shows that realized within-analyst performance persistence is statistically indistinguishable from zero. In other words, markets respond as though recent performance is substantially more predictive of future skill than the data support, consistent with systematic miscalibration in analyst credibility.

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