Impact of Analysts' Recommendations on Stock Prices: Evidence from Karachi Stock Exchange (original) (raw)
Related papers
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...
Can Analysts Really Forecast? Evidence from the Karachi Stock Exchange
This study examines the impact of analysts' recommendations on stock prices listed on the Karachi Stock Exchange for the period 2006–12. The recommendations are extracted from the daily Morning Shout report published by Khadim Ali Shah Bukhari Securities Ltd (KASB), which provides buy and sell recommendations for different stocks. We use the market model to estimate the abnormal returns around the recommendation dates for these securities. The study also investigates whether the abnormal returns are due to price pressure or information content. We find that investors earn abnormal returns on the basis of analysts' recommendations for these securities. The results are robust in considering only the sub-sample subsequent to 2008's global financial crisis, and are also consistent with the information content hypothesis and price pressure hypothesis.
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...
Impact of Sell-Side Reccomendation Reports on Stock Returns
REVISTA EVIDENCIAÇÃO CONTÁBIL & FINANÇAS
Objective: this research aims to investigate the impact of sell-side analysts' reports on stock returns. Foundation: it is inserted in equity investment analysts research contextualized in the Market Efficiency Theory which defines that in efficient markets the market prices reflects all the relevant information of its intrinsic price. Method: this investigation is based on the event study methodology, which event date is the publication of the recommendation report. The abnormal return obtained for the event date and the cumulative abnormal return is obtained from the date of publication of the recommendation for 3 days, 1 week, 1 month, and 3 months. Results: results obtained were consistent in signal with the first hypothesis that abnormal return is positive for each one of the terms from the event date (1 day to 3 months) for recommendation of purchase and strong purchase. On the other hand, the abnormal return was all negative with statistical significance for sale recommendations in favor of the second hypothesis which comprises that the abnormal return is negative for each of the deadlines for the sell recommendations and strong sell.
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.
The Impact of Buy – Sell Recommendations on Banks’ Stock Returns
Baltic Journal of Economic Studies
The aim of this research was to investigate the impact of stock buy-sell recommendations of brokerage houses on the stock returns of banks operating in Borsa Istanbul (BIST). Accordingly, it has been attempted to assess if investors can receive abnormal returns in accordance with the recommendations of brokerage houses using the case study technique. The validity of the semi-strong effective form of investors who made a buying-selling decision based on brokerage house recommendations was investigated. The returns of the banks' stocks were obtained from the data-stream database. The study evaluated buy-sell recommendations for four large brokerage houses and analyzed data from January 2018 through December 2020. The event study method was used, and t-test was performed in order to determine the difference of abnormal returns from zero in the research. As a result of the research, a negative abnormal return was determined on the day of the event and the day after the sell recommen...
The investment value of the frequency of analyst recommendation changes for the ordinary investor
Journal of Empirical Finance, 2012
We find that analysts who frequently revise their stock recommendations outperform those who do not. This result holds for portfolios formed on the basis of favorable changes in recommendations as well as unfavorable changes. The frequency of revision captures information incremental to factors known to identify superior recommendations. Although much of the frequently revising analysts' advantage follows events proxied by abnormally high returns or trading volume, it does not appear to derive from more public events such as earnings announcements. Further, these analysts outperform their counterparts even over the short-run, suggesting that this is not simply a "quantity over quality" phenomenon. In summary, our results imply that the superior profitability of frequently revising analysts emanates at least partly from their ability to generate private information using their superior skill. Overall, the ordinary investor is better off following the advice of analysts who revise their recommendations more frequently. Hobbs, J., et al. (2012). "The investment value of the frequency of analyst recommendation changes for the ordinary investor." Journal of Empirical Finance 19(1): 94-108. https://doi.a r t i c l e i n f o a b s t r a c t
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.
European Financial …, 2006
This paper seeks to test whether analysts are prone to behavioral biases when making stock recommendations. In particular, we work with stocks whose performance subsequent to a new buy or sell recommendation is in the opposite direction to the recommendation. We find that these "nonconforming" recommendations are associated with overconfidence bias (as measured by optimism in the language analysts use), representativeness bias (as measured by previous stock price performance, market capitalization, and book-to-market), and potential conflicts of interest (as measured by investment banking relationships). Our results demonstrate that potential conflicts of interest significantly predict analyst nonconforming stock recommendations. This supports recent policy-makers' and investors' allegations that analysts' recommendations are driven by the incentives they derive from investment banking deals. These allegations have led to implementation of rules governing analyst and brokerage house behavior. However, our finding that psychological biases also play a major role in the type of recommendation issued suggests that these rules may work only in as far as regulating conflicts of interest, but will have a limited role in regulating the cognitive biases to which analysts appear to be prone. Our results suggest that, as a result of this, analyst stock recommendations are likely to continue to lack investment value.
How useful are the equity analysts' report? Evidence from Malaysia
Reports on Economics and Finance
Using 657 Malaysian sell-side analyst recommendations from January 2010 until December 2015, this paper documents the usefulness of equity analyst reports to investors. The research findings revealed that target price and earnings forecast had a significant association with stock return. However, trading volume was shown to have an insignificant relationship with the return. Overall, our results indicate that the information content in the analyst report contained only 66.67% explanatory vis a vis stock return and only target price and earnings forecast were useful. This paper is expected to add value in enriching the literature available on analyst report especially in the context of Malaysian market.