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Are Analyst Short‐Term Trade Ideas Valuable?
Author(s) -
BIRRU JUSTIN,
GOKKAYA SINAN,
LIU XI,
STULZ RENÉ M.
Publication year - 2022
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/jofi.13130
Subject(s) - stock (firearms) , stock price , term (time) , economics , financial economics , business , mechanical engineering , paleontology , physics , quantum mechanics , series (stratigraphy) , engineering , biology
Short‐term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find that trade ideas have a stock price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm's management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short‐term stock‐picking skills.