On the investment value of sell-side analyst recommendation revisions in the UK

Chen Su (), Hanxiong Zhang (), Kenbata Bangassa and Nathan Lael Joseph
Additional contact information
Chen Su: Newcastle University Business School
Kenbata Bangassa: University of Liverpool Management School
Nathan Lael Joseph: Aston University

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 1, No 9, 257-293

Abstract: Abstract This study conducts a comprehensive investigation into the investment value of sell-side analyst recommendation revisions in the UK, using a unique dataset from 1995 to 2013. Our rolling window analysis shows that, on average, upgrades fail to generate any significantly positive abnormal returns in any period of time, even before transaction costs. In addition, although downgrades could generate significantly negative abnormal gross returns over some periods of time, these observed significant returns disappear after accounting for transaction costs. Overall, our bootstrapping simulations confirm sell-side analysts’ lack of skill in making valuable up/downward revisions to cover the size of transaction costs, irrespective of whether these revisions are made by high-ranking brokerage houses or not. However, an industry-based analysis shows that, within two high-tech industry sectors, i.e., Health Care and Technology sectors, sell-side analysts possess certain skill in making valuable downgrades over some periods of time and, in particular, such skill is sufficient to offset transaction costs.

Keywords: Analyst recommendation revisions; Transaction costs; High-ranking brokerage houses; Industry; Bootstrapping simulations (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G17 G24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11156-018-0749-y

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