Abstract

http://ssrn.com/abstract=1478451
 
 

References (45)



 
 

Citations (6)



 


 



Do Earnings Estimates Add Value to Sell-Side Analysts' Investment Recommendations?


Ambrus Kecskes


York University - Schulich School of Business

Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

Kent L. Womack


University of Toronto - Rotman School of Management (deceased)

April 18, 2015


Abstract:     
Sell-side analysts change their stock recommendations when their valuations differ from the market's. These valuation differences can arise from either differences in earnings estimates or the non-earnings components of valuation models. Indeed, we find that recommendation changes motivated by earnings estimate revisions are more valuable to investors: about 1.3% (-2.8%) more for upgrades (downgrades). Evidence from variation in analysts' regulatory and firms' information environments suggests that recommendation changes with earnings estimate revisions are less subject to analysts' cognitive and incentive biases. Implemented as a trading strategy, earnings-based recommendation changes earn risk-adjusted returns of 3% per month, considerably more than non-earnings-based recommendation changes.

Number of Pages in PDF File: 37

Keywords: Equity research analysts; Investment recommendations; Earnings estimates; Information; Valuation; Asset pricing; Trading strategy

JEL Classification: G14, G24


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Date posted: September 26, 2009 ; Last revised: April 19, 2015

Suggested Citation

Kecskes, Ambrus and Michaely, Roni and Womack, Kent L., Do Earnings Estimates Add Value to Sell-Side Analysts' Investment Recommendations? (April 18, 2015). Available at SSRN: http://ssrn.com/abstract=1478451 or http://dx.doi.org/10.2139/ssrn.1478451

Contact Information

Ambrus Kecskes
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Roni Michaely (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
Kent L. Womack
University of Toronto - Rotman School of Management (deceased)

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