In other words, the probability of a security analyst being selected to the team is proportional to the number of teams the individual was previously chosen for.
An alternative way of stating this assumption is that the probability of a security analyst who has never served on the team being chosen for the team is the same for all such security analysts.
Suppose that selectors of the team believe at first that all security analysts are equally likely to become stars, and that each selector picks one security analyst at random.
Here we assume as an empirical approximation that the probability that team k + 1 selects a security analyst who has not yet been chosen to the previous k teams is small ([delta] [approximate] 0) so that [rho] is close to one.
In this paper, we investigate the superstar phenomenon in the security analysis industry through an analysis of the probabilistic mechanism by which security analysts are selected for inclusion in Institutional Investor's All-American Research Team (II AART).
A constant question investors face is: Does the past performance of security analysts merit the compensation they receive?
Thus, our results support the notion that the most successful security analysts achieve such results due to their proficiency as opposed to mere chance or luck.
Studies in the field of finance on the output of security analysts have focused on the information content and accuracy of their earnings forecasts.
Brown and Chen (1991) found evidence of the earnings forecast superiority of the II AART compared to the consensus of security analysts from the Zacks Investment Research database.
Another stream of recent research has focused on the process that security analysts use to arrive at their ratings for a given security.
These money managers are asked to evaluate security analysts in four of their primary activities: (1) stock recommendations, (2) earnings forecasts, (3) written reports, and (4) overall performance.