Can Investors Profit from Security Analyst Recommendations?

Sung Jun Park and Ki Young Park
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Sung Jun Park: Yonsei University
Ki Young Park: Yonsei University

No 2018rwp-131, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper revisits the question of whether investors can benefit from consensus recom- mendations of stock market analysts in US equity markets. To examine the profitability net of transactions cost, we calculate transactions cost based on effective tick spread. We find that transactions cost becomes noticeably lower from 2001 and the strategy of purchasing 'strong buy' stocks and shorting 'strong sell' stocks yields the abnormal returns of 4.7-5.8% per year during the period of 2001-2016, even after accounting for transactions cost. We also find that 'strong buy (sell)' stocks are growth (value) firms and short-term winners (losers). We discuss our empirical results in the context of market efficiency.

Keywords: consensus recommendations; transactions cost; asset pricing; market efficiency (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 23pages
Date: 2018-10
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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