Analysts’ Recommendations and Stock Performance: An Empirical Study of Brazilian Public Companies

Abstract

The purpose of this paper is to investigate the effect of stock recommendations in returns for Brazilian public companies. Using data from the I/B/E/S system, we examine the empirical distribution of buy, sell and hold recommendations as well their effect on prices, for the period from January 1995 through 2003. Among the points analyzed are the performance of consensus recommendations and the effect on the market of upgrades and downgrades. The results show that more than 50% of recommendations in the study period were buy. In terms of market adjusted return, the individual recommendations of some analysts performed reasonably well in the 30 days after the recommendation date, but the consensus recommendation did not perform well. The sell recommendations and downgrades produced significant negative returns.

Keywords: Recommendations, Analysts, Stock Returns, Investment Analysis

JEL Classification: G3, M4, G24