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Introducing Analyst Sentiment: A Systematic Equity Strategy Factor

In this white paper, we introduce the Analyst Sentiment factor, one of the Systematic Equity Strategy (SES) factors modeled by MSCI Equity Analytics Research.  The Analyst Sentiment factor seeks to identify market inefficiencies that can occur during the lag between an analyst forecast and the time it takes investors to respond to a change in analyst views.  This paper finds that, over a study period of more than 20 years, the Analyst Sentiment descriptors produced positive drift at low volatility, with a high information ratio and low correlation with the market. Decile analysis showed that the lower the exposure to Analyst Sentiment, the lower future abnormal returns were.  For stocks with positive exposure to this factor, the picture was more nuanced, since some investors may regard positive analyst revisions with suspicion and seek additional confirmation.