The Central Role of Analyst Skill Level

Model choice has found to be driven more by analysts’ background and experience than by firm characteristics. Francesca Bastianello, an assistant professor of finance and Fama Faculty Fellow at the University of Chicago Booth School of Business, co-authored research on valuation models to study how financial market participants value stocks in practice. Using a novel data set of 1.1 million sell‑side equity analyst reports, the research identifies which valuation models analysts use — such as discounted cash flow (DCF) and multiple‑based approaches — and evaluates how these models perform. Analysts’ choice of valuation model is strongly shaped by their training and experience, leading to substantial heterogeneity even when valuing the same firm. On average, DCF models underperform relative to multiples in forecast accuracy, but this pattern reverses for highly skilled analysts, especially when valuing hard‑to‑value firms. Bastianello explained her findings at the Fink Center for Finance’s seventh annual Conference on Financial Markets. Followed by remarks by Jonathan Berk, the A.P. Giannini Professor of Finance at Stanford University Graduate School of Business, her presentation highlighted the central role of analyst skill in determining when complex valuation models add value. The annual conference, hosted by UCLA Anderson School of Management, combines theoretical and methodological rigor with timely policy relevance. Anderson’s leadership tenets include directly confronting both the opportunities and dangers of AI in academic scholarship, while fostering critical dialogue on how institutions must adopt ethical standards for evaluation, disclosure, transparency and accountability in an AI‑accelerated research environment. 00:00 Introduction 00:05 Presentation 21:04 Discussion Learn more about the Fink Center’s annual Conference on Financial Markets: https://www.anderson.ucla.edu/about/c... #financialforecasting #capitalmarkets #multiplesvaluation