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Analyzing the Analysts: When Do Recommendations Add Value?
Author(s) -
Jegadeesh Narasimhan,
Kim Joonghyuk,
Krische Susan D.,
Lee Charles M. C.
Publication year - 2004
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.1540-6261.2004.00657.x
Subject(s) - momentum (technical analysis) , value (mathematics) , predictive value , econometrics , contrast (vision) , economics , business , financial economics , actuarial science , statistics , computer science , mathematics , medicine , artificial intelligence
We show that analysts from sell‐side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of other predictive variables.