Do Buy-Side Recommendations Have Investment Value?
66 Pages Posted: 18 Mar 2012 Last revised: 18 Sep 2012
Date Written: March 2012
We examine a dataset consisting of comprehensive investment recommendations paired with analyst-specific information for over 1,100 buy-side analysts (predominantly analysts from hedge funds). Short recommendations from these analysts generate an immediate and significant decline in price, whereas long recommendations for small firms have positive short-term returns and exhibit a positive drift. The evidence suggests buy-side recommendations provide information to market participants and that buy-side firms front-run their own information events. We also explore institutional ownership changes and document a wealth transfer between the broader institutional market and buy-side firms in the sample.
Keywords: hedge funds, buy-side analysts, sell-side analysts, stock recommendations
JEL Classification: G10, G14
Suggested Citation: Suggested Citation