Analyzing the Analysts: When Do Recommendations Add Value?
University of Southern California · University of Illinois Urbana-Champaign · +8 more institutions
Abstract
ABSTRACT We show that analysts from sell‐side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of…
Citation impact
- FWCI
- 48.92
- Percentile
- 100%
- References
- 43
Authors
4- NJNarasimhan JegadeeshCorresponding
University of Southern California, University of Illinois Urbana-Champaign, Georgetown University, Cornell University, University of Rochester, Case Western Reserve University, Rice University, University of Pennsylvania, University of California, Berkeley
- JKJoonghyuk Kim
University of Southern California, University of Illinois Urbana-Champaign, Georgetown University, Cornell University, University of Rochester, Case Western Reserve University, Rice University, University of Pennsylvania, University of California, Berkeley
- SDSusan D. Krische
University of Southern California, University of Illinois Urbana-Champaign, Georgetown University, Cornell University, University of Rochester, Case Western Reserve University, Rice University, University of Pennsylvania, University of California, Berkeley
- CMCharles M.C. Lee
University of Southern California, University of Illinois Urbana-Champaign, Georgetown University, Cornell University, Issues Research, University of Rochester, Case Western Reserve University, Rice University, University of Pennsylvania, University of California, Berkeley
Topics & keywords
- Momentum (technical analysis)
- Value (mathematics)
- Predictive value
- Econometrics
- Contrast (vision)
- Economics
- Business
- Financial economics