The Value of Client Access to Analyst Recommendations

Abstract:     
Early access to stock recommendations provides brokerage firm clients with incremental investment value. After controlling for transaction costs, purchasing (selling) following upgrades (downgrades) results in average two-day returns of 1.02% (1.50%). Short-term profit opportunities persist for two hours following the pre-market release of new recommendations. A calendar-based strategy produces annualized returns of over 30% and the results are robust within sub-periods. Recommending firms' market makers shift their quotes accordingly, providing indirect evidence that clients make use of their short-term informational advantage.

JEL Classifications: G14, G24

Working Paper Series