Article1996

Do Brokerage Analysts' Recommendations Have Investment Value?

1,916 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

ABSTRACT An analysis of new buy and sell recommendations of stocks by security analysts at major U.S. brokerage firms shows significant, systematic discrepancies between prerecommendation prices and eventual values. The initial return at the time of the recommendations is large, even though few recommendations coincide with new public news or provide previously unavailable facts. However, these initial price reactions are incomplete. For buy recommendations, the mean postevent drift is modest (+2.4%) and short‐lived, but for sell recommendations, the drift is larger (−9.1%) and extends for six months. Analysts appear to have market timing and stock picking abilities.

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References

1993Common risk factors in the returns on stocks and bonds 1992The Cross-Section of Expected Stock Returns 1985Does the Stock Market Overreact?1985Using daily stock returns 1968An Empirical Evaluation of Accounting Income Numbers 1991Efficient Capital Markets: II 1980On the Impossibility of Informationally Efficient Markets 1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964

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