Can Analysts Pick Stocks for the Long-Run?
64 Pages Posted: 16 Mar 2011 Last revised: 11 Feb 2015
Date Written: February 9, 2015
This paper examines post-revision return drift, or PRD, following analysts’ revisions of their stock recommendations. PRD refers to the finding that the analysts’ recommendation changes predict future long-term returns in the same direction as the change (i.e., upgrades are followed by positive returns, and downgrades are followed by negative returns). During the high-frequency algorithmic trading period of 2003-2010, average PRD is no longer significantly different from zero. The new findings agree with improved market efficiency after declines in real trading cost inefficiencies. They are consistent with a reduced information production role for analysts in the supercomputer era.
Keywords: Analysts’ forecasts, Financial analysts, Financial markets, Investment banking, Market efficiency, Security analysts, Behavioral finance
JEL Classification: G02, G14, G24
Suggested Citation: Suggested Citation