Role of Analysts: Following Momentum or Creating Momentum?

47 Pages Posted: 27 Sep 2011

See all articles by Keming Li

Keming Li

Texas A&M University (TAMU) - San Antonio

Mohammad Riaz Uddin

Marshall University - Lewis College of Business

Date Written: September 26, 2011

Abstract

This paper examines whether sell-side security analysts follow momentum or create momentum by themselves for recommending stocks. We employ an indirect method of testing the role of analysts by assigning projected recommendation scores for the neglected stocks to mitigate the so-called piggy-backing effect. Our results are not fully consistent with the notion that analysts follow past momentum to predict future stock recommendations. Using a data set of neglected stocks and creating projected recommendations of these stocks, we find evidence that analysts drive up the stocks’ momentum characteristics before recommending them. This finding suggests the fact that analysts not only follow momentum, rather they create momentum, at least to a great extent.

Keywords: Analyst Recommendation, Covered Stocks, Neglected Stocks, Parallel Projection

JEL Classification: G1, G14, G24

Suggested Citation

Li, Keming and Uddin, Mohammad Riaz, Role of Analysts: Following Momentum or Creating Momentum? (September 26, 2011). Available at SSRN: https://ssrn.com/abstract=1933987 or http://dx.doi.org/10.2139/ssrn.1933987

Keming Li (Contact Author)

Texas A&M University (TAMU) - San Antonio ( email )

One University Way
San Antonio, TX 78224
United States

Mohammad Riaz Uddin

Marshall University - Lewis College of Business ( email )

400 Hal Greer Boulevard
Huntington, WV 25755
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
140
Abstract Views
1,506
rank
256,396
PlumX Metrics