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Do Brokerage Analysts' Recommendations Have Investment Value?
Author(s) -
WOMACK KENT L.
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb05205.x
Subject(s) - investment value , stock (firearms) , value (mathematics) , business , financial economics , investment banking , finance , investment (military) , stock price , monetary economics , stock market , actuarial science , event study , economics , computer science , cash , machine learning , politics , law , political science , mechanical engineering , paleontology , context (archaeology) , horse , series (stratigraphy) , engineering , biology
An analysis of new buy and sell recommendations of stocks by security analysts at major U.S. brokerage firms shows significant, systematic discrepancies between prerecommendation prices and eventual values. The initial return at the time of the recommendations is large, even though few recommendations coincide with new public news or provide previously unavailable facts. However, these initial price reactions are incomplete. For buy recommendations, the mean postevent drift is modest (+2.4%) and short‐lived, but for sell recommendations, the drift is larger (−9.1%) and extends for six months. Analysts appear to have market timing and stock picking abilities.