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: PurposeThe 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/approachBased 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.FindingsThe 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 implicationsA 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/valueThis 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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