Analyst Report Subjectivity

Abstract

We use machine learning techniques to classify statements in 421,583 analyst reports into objective facts and subjective opinions. We find that market reaction to the sentiment of analyst reports increases with analysts’ subjectivity in their research reports. The effect is more pronounced for firms with lower financial report quality and for analysts’ opinions on risk and growth, but less pronounced when macro uncertainty is higher. We also find that higher prevalence of analysts’ objectivity is associated with better future firm earnings growth. Additional analyses indicate that analyst report subjectivity captures analysts’ additional effort allocation and private information. Taken together, our study contributes to understanding the nature of qualitative information produced by sell-side analysts.