Robo vs. Traditional Analyst Stock Recommendations

Are robo-analysts, who apply technology to mass-produce recommendations with limited human intervention, better stock pickers than traditional human analysts? In their January 2020 preliminary (and incomplete) paper entitled “Man Versus Machine: A Comparison of Robo-Analyst and Traditional Research Analyst Investment Recommendations”, Braiden Coleman, Kenneth Merkley and Joseph Pacelli compare distribution, revision frequency and performance for stock recommendations from robo-analysts versus traditional analysts. In measuring performance, they consider 3-factor (adjusting for market, size and book-to-market factors) and 5-factor (additionally adjusting for profitability and investment factors) alphas of daily rebalanced portfolios of buy or sell recommendations, with a lag of one day between recommendations and trades. Using 134,781 reports issued by seven prominent Robo-Analyst firms and by traditional analysts for 1,002 stocks covered by at least three analysts for at least five years during 2003 through 2018, they find that:

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