Analysts' Stock Recommendations, Earnings Growth and Risk

Accounting and Finance, Forthcoming

51 Pages Posted: 5 Apr 2016

See all articles by Ken V. Peasnell

Ken V. Peasnell

Lancaster University - Department of Accounting and Finance

Yuan Yin

Independent

Martien Jan Peter Lubberink

Victoria University of Wellington - Te Herenga Waka - School of Accounting and Commercial Law

Date Written: February 11, 2016

Abstract

A key output of sell-side analysts is their recommendations to investors as to whether they should, buy, hold or sell a company’s shares. However, relatively little is known regarding the determinants of those recommendations. This paper considers this question, presenting results that suggest that recommendations are dependent on analysts’ short-term and long-term earnings growth forecasts, as well as on proxies for the analysts’ unobservable views on earnings growth in the more distant future and risk. Furthermore, analysts who appear to incorporate earnings growth beyond the long-term growth forecast horizons and risk into their recommendation decisions make more profitable stock recommendations.

Keywords: stock recommendations, long-term growth forecast, really long-term growth, nonlinearity

Suggested Citation

Peasnell, Kenneth V. and Yin, Yuan and Lubberink, Martien Jan Peter, Analysts' Stock Recommendations, Earnings Growth and Risk (February 11, 2016). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2746286 or http://dx.doi.org/10.2139/ssrn.2746286

Kenneth V. Peasnell

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+44 1524 593631 (Phone)
+44 1524 847321 (Fax)

Martien Jan Peter Lubberink

Victoria University of Wellington - Te Herenga Waka - School of Accounting and Commercial Law ( email )

New Zealand
+64 4 463 5968 (Phone)

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