The impact of the internet bubble on broker recommendations

Christophe Prat and Jerome Caby

Review of Accounting and Finance, 2024, vol. 24, issue 3, 286-309

Abstract: Purpose - The purpose of this paper is to investigate the unusual market conditions of the dot-com bubble that may affect the quality of financial analysts’ evaluations and their relevance for investors. Design/methodology/approach - Based on a sample of more than 1 million recommendations issued by the top 100 brokerage houses of 1,323 companies listed in the European DJ Stoxx 600 from 12/31/1992 to 12/31/2005, the authors measured, via new metrics, the dispersion of broker recommendations, their quality and the changes in the rankings of brokerage houses. Findings - The results showed that the dispersion and quality of recommendations are strongly affected and that the reliability of the reputation of brokerage houses is increased. Practical implications - A close monitoring of the quality of recommendations measured by dispersion and performance as well as ranking volatility should be a useful tool for investors. Originality/value - This leads to the conclusion that analysts’ recommendations should be used cautiously during troubled times.

Keywords: Financial crisis; Stock market; Portfolio theory; Financial and investment analyst (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-04-2024-0153

DOI: 10.1108/RAF-04-2024-0153

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