Well, common sense says yes. They know more about the country, have a better feeling about the words and language, the touch of the management of the firms and so on and so forth. Here's a paper which provides quantitative information on this argument.
Kee-Hong Bae, Rene M. Stulz and Hongping Tan, Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts, Journal of Financial EconomicsIn Press, Accepted Manuscript, , Available online 30 October 2007.
This paper examines whether analysts resident in a country make more precise earnings forecasts for firms in that country than non-resident analysts. Using a sample of 32 countries, we find an economically and statistically significant local analyst advantage even after controlling for firm and analyst characteristics. The local advantage is high in countries where earnings are smoothed more, less information is disclosed by firms, and firm idiosyncratic information explains a smaller fraction of stock returns. It is negatively related to whether a firm has foreign assets and to market participation by foreign investors and by institutions, and positively related to holdings by insiders. The extent to which U.S. investors underweight a country’s stocks is positively related to that country’s local analyst advantage.
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