The value of stock analysts' recommendations: Evidence from emerging markets (original) (raw)
Related papers
2014
Financial analysts issue "buy", "sell" or "hold" recommendation about stocks. Recommendations have value if investors trade upon them, which should affect prices and trading volumes. We use the methodology of event study to analyze price and volume reaction to the recommendation release. With a database of 6646 recommendations about 55 companies on the Tunisian Stock Exchange (BVMT) from 2005 to 2009, we show that prices and volumes react significantly to recommendations level. However, we only provide a weak evidence of reaction to changes in recommendations. We explain this result by a special feature of this market place: the systematic release of monthly recommendations, in contrast to developed markets where new recommendations are issued only if new information is available. This can focus investors on the confirmation of the recommendation, rather than on their revisions. We also find a special feature of emerging stock markets, which is that vol...
ANALYSTS' RECOMMENDATIONS AND STOCK PERFORMANCE: AN EMPIRICAL STUDY OF BRAZILIAN PUBLIC COMPANIES
Advances Scientific and Applied Accounting, 2010
This paper aims to investigate the effect of stock recommendations in returns for Brazilian public companies. Using data from the I/B/E/S system, we examine the empirical distribution of buy, sell and hold recommendations and their effect on prices from January 1995 through 2003. Among the points analyzed are the performance of consensus recommendations and the impact on the market of upgrades and downgrades. The results show that more than 50% of the recommendations in the study period were bought. In terms of market-adjusted return, the individual recommendations of some analysts performed reasonably well in the 30 days after the recommendation date, but the consensus recommendation did not perform well. The sell recommendations and downgrades produced significant negative returns.
International Journal of Business Governance and Ethics, 2013
What happens to analysts' performance when security market reforms bring corporate transparency in emerging markets but the governance of market intermediaries (mainly stock brokers) is weak? Using analysts' recommendation and subsequent stock market returns from Pakistan, we find that analysts' performance deteriorated significantly after the corporate reforms. This declining trend continued even after the introduction of corporate governance code in 2002. Earlier evidence suggests that market intermediaries such as stock brokers were involved in pumping and dumping of stocks in Pakistan. One may attribute this decline in analysts' performance with the stock price manipulations by these brokers who bent the laws of supply and demand in their favour by injecting or withdrawing liquidity from the market. These actions may have diminished the informational content of the analysts' recommendations leading to the lower value of recommendations. We propose that the governance of the market intermediaries should be an issue of profound interest during the corporate reform process in the emerging markets.
Value of analyst recommendations: International evidence
Journal of Financial Markets, 2006
This paper examines analyst recommendations in the G7 countries and evaluates the value of these recommendations over the 1993 to 2002 period. We find that the frequencies of sell and strong sell recommendations in all countries are far less than that of buy and strong buy recommendations. The frequency of sell recommendations is the lowest in the U.S. We also find that stock prices react significantly to recommendation revisions on the revision day and on the following day in all of these countries except Italy. We find the largest price reactions in the U.S., followed by Japan. We also evaluate trading strategies that buy upgraded stocks and sell downgraded stocks. Here again, we find the highest profits in the U.S., followed by Japan.
Impact of Analysts' Recommendations on Stock Prices: Evidence from the Karachi Stock Exchange
This study analyzes the impact of analysts' recommendations on stock prices in the Karachi Stock Exchange (KSE) using the Morning Shout, a report published daily by Khadim Ali Shah Bukhari Securities Ltd (KASB) which includes buy and sale recommendations about different stocks. Using event study methodology, a sample period of 2 years and 277 recommendations were analyzed. Market model is used to estimate abnormal returns for stocks around the recommendation dates. Results of the study indicate that analysts' recommendations do create positive abnormal returns for investors and these abnormal returns are the result of the information content. Results show that stocks earned on average 0.41% abnormal return on the day of publication of recommendations and continued to earn abnormal returns till the 10 th day of publication of recommendations. Further analysis shows that there is a possibility of information leakage prior to the publication of recommendations, as these securit...
Impact of Analysts' Recommendations on Stock Prices: Evidence from Karachi Stock Exchange
2011
This study analyzes the impact of analysts' recommendations on stock prices in the Karachi Stock Exchange (KSE) using the Morning Shout, a report published daily by Khadim Ali Shah Bukhari Securities Ltd (KASB) which includes buy and sale recommendations about different stocks. Using event study methodology, a sample period of 2 years and 277 recommendations were analyzed. Market model is used to estimate abnormal returns for stocks around the recommendation dates. Results of the study indicate that analysts' recommendations do create positive abnormal returns for investors and these abnormal returns are the result of the information content. Results show that stocks earned on average 0.41% abnormal return on the day of publication of recommendations and continued to earn abnormal returns till the 10 th day of publication of recommendations. Further analysis shows that there is a possibility of information leakage prior to the publication of recommendations, as these securities earned positive abnormal returns prior to the publication of Morning Shout.
Central European Journal of Operations Research, 2014
Using a individually collected database for stock recommendations with more than 8,000 research reports issued over the period 2000-2014 on stocks listed in the Austrian Traded Index, we examine short-term market reactions. Besides traditional clustering of recommendation changes (upgrade, and downgrade) we take previous recommendations into account to get a very detailed subset of different event types. In order to consider Austrian market characteristics, we use an ARMA-market-GARCH model in addition to the market model to compare estimation results for abnormal returns. For the most extensive recommendation changes, from SELL to BUY, we document an abnormal return of 1.232 % and from BUY to SELL, −1.534 % compared to pure BUY or SELL recommendations with 0.436 and −0.672 %, respectively. Furthermore we are able to show that the magnitude of abnormal returns on the day of the event depends on the firm size and the delta between the target price of the recommendation and the actual price of the stock. Although we detect higher abnormal returns during the crisis, we do not find statistical evidence that investors tend to trust analysts' opinions more during turbulent times. We conclude that the more sophisticated model does not improve the outcome and therefore a simple market model is sufficient to study events in the Austrian market.
Value relevance of analyst earnings forecasts in emerging markets
Advances in Accounting, 2012
Even though research in accounting and finance has extensively examined the role of financial analysts in developed economies, this issue has not been thoroughly examined in an emerging market setting. In this paper, I examine whether, following a market opening, analyst forecast accuracy and the market's reliance on analyst forecasts increase with time. Accuracy is expected to increase over time as analysts exert more effort and gain valuable forecasting experience. Results indicate that time is positively related to analyst forecast accuracy after controlling for a number of other firm and country characteristics. Second, I posit that time should also be related to the market's propensity to use analyst forecasts to form earnings expectations. As markets open and investors become more sophisticated, the reliance on analyst forecasts should also increase. Results are consistent with this expectation. In particular, I find that in the first sub-period earnings expectations based on random walk exhibit greater relative information content than earnings expectations based on analyst forecasts. This pattern is reversed in the third sub-period where analyst forecast errors better explain returns. Incremental information content tests produce similar results. Future research should further investigate the relation between financial analysts and other important market characteristics in emerging economies.
Prophets and Losses: Reassessing the Returns to Analysts' Stock Recommendations
SSRN Electronic Journal, 2000
After a string of years in which security analysts' top stock picks significantly outperformed their pans, the year 2000 was a disaster. During that year the stocks least favorably recommended by analysts earned an annualized market-adjusted return of 48.66 percent while the stocks most highly recommended fell 31.20 percent, a return difference of almost 80 percentage points. This pattern prevailed during most months of 2000, regardless of whether the market was rising or falling, and was observed for both tech and non-tech stocks.
Research in International Business and Finance, 2013
This paper examines the performance of foreign and local analysts' stock recommendations in Indonesia, Malaysia, Thailand, and South Korea during the financial crisis of 1997-1998. Unlike most of the prior studies, our results provide strong evidence that neither of the two groups held a complete information advantage over the other during the period of crisis. Using a large dataset of analysts' recommendations, we show that foreign analysts' buy recommendations were more informative than local analysts' buy recommendations, while the opposite held for sell recommendations, i.e. local analysts' sell recommendations were more informative than foreign analysts' sell recommendations. Our results provide evidence that neither of the frequently advanced explanations regarding relative performance of foreign and local analysts hold during the period of extreme uncertainty.