Analyst Recommendations and Stock Price Momentum

Abstract

This paper examines the role of sell-side security analysts in the stock price momentum phenomenon. We employ an indirect method that mitigates the “piggy-backing” effect to test the role of analysts. Our findings indicate that analyst recommendations are positively influenced by the momentum characteristics of stocks, that there is no momentum for neglected stocks, and, most importantly, that analysts cause momentum. The findings hold up to various robustness checks.

Keywords: Analyst recommendation, Covered stocks, Neglected stocks, Parallel projection, Firm Fundamentals, Momentum

JEL Classification: G1, G14, G24