Analysts' Recommendations: Evidence from a Portuguese Investment Bank

Abstract

We assess the performance of a few trading strategies based on a sample of 139 analysts' recommendations made public by a Portuguese investment bank's research department. We address whether stock picking strategies on the basis of these recommendations were effective tools for stock selection. Our results suggest that these recommendations have not been useful for stock selection. Most of the recommendation-based strategies we have built generated negative significant performance. We tested the robustness of these findings over time and across industries. We find that the recommendation-based strategies appear to be more effective for selection of Portuguese stocks, which can reflect a comparative home advantage: Portuguese analysts may have better skills in selecting Portuguese stocks rather than foreign stocks.

Keywords: Analysts recommendations, Event studies, Performance measurement, Market efficiency

JEL Classification: G14, G24