The Power of Travel: How Analysts Benefit from Hitting the Road

The Power of Travel: How Analysts Benefit from Hitting the Road

A new study reveals the surprising advantages of travel for financial analysts

In the world of financial analysis, the role of travel has long been debated. While some argue that hitting the road provides valuable insights and firsthand experiences, others believe it can be time-consuming and potentially misleading. However, a recent study conducted by researchers from Rutgers University, Rice University, the University of Notre Dame, and Michigan State University sheds new light on the benefits of travel for analysts. Their findings suggest that travel not only enhances the credibility of stock recommendations but also improves the accuracy of forecasts. In this article, we delve into the intriguing results of this study and explore the reasons behind its surprising conclusions.

The Trade-Off: Time Spent Traveling vs. Forecasting

The study tracked 336 American stock analysts over a four-year period, analyzing their work patterns and the impact of travel on their performance. The researchers estimated the length of analysts’ office days based on their activity on Bloomberg terminals. If an analyst did not log in on a particular workday, it was assumed they were traveling for business purposes.

The findings revealed a trade-off between travel and forecasting. Analysts who engaged in more travel issued fewer forecasts compared to their peers who spent more time at their desks. However, the study also found that the stock recommendations of these peripatetic analysts had a more significant impact on the market. Their picks moved the market more than those of their desk-bound counterparts. Furthermore, these well-traveled analysts were more likely to be recognized as “star” analysts in the rankings published by Institutional Investor, a prestigious finance magazine.

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The Seductive Power of Travel

Critics argue that the prestige gained by traveling analysts may be attributed to their increased opportunities for networking with institutional investors, who play a significant role in determining rankings. Additionally, the allure of exciting travel stories may captivate investors and enhance the analysts’ reputation. However, the study’s findings suggest that there is more to the story.

Contrary to skeptics’ assumptions, the research reveals that the forecasts of well-traveled analysts were significantly more accurate than those of their peers. While it is challenging to establish causality, the authors suggest that better forecasters may earn the freedom to travel more extensively. The study also provides evidence supporting this claim. When the COVID-19 pandemic struck in early 2020, curtailing travel for analysts, the accuracy of their forecasts deteriorated disproportionately. This suggests that travel indeed plays a crucial role in improving analysts’ abilities to make accurate predictions.

Conclusion:

The debate surrounding the value of travel for financial analysts has been ongoing for years. However, the recent study by researchers from Rutgers University, Rice University, the University of Notre Dame, and Michigan State University offers compelling evidence in favor of hitting the road. The findings demonstrate that travel not only enhances the impact of stock recommendations but also improves the accuracy of forecasts. While there may be trade-offs in terms of time spent traveling versus forecasting, the benefits seem to outweigh the costs. As the world slowly recovers from the pandemic, analysts may find themselves eager to embark on new adventures, armed with the knowledge that exploring the world can indeed sharpen their analytical skills and provide valuable insights into the companies they cover. So, the next time you hear a financial analyst waxing lyrical about the kebabs of Baku, remember that their tales may be more than just culinary anecdotes; they may hold the key to successful stock picks.

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