Evidence on the Empirical Relationship Between Recommendation Profitability and Forecast Accuracy

54 Pages Posted: 14 Feb 2014 Last revised: 1 Jul 2017

See all articles by Jochen Lawrenz

Jochen Lawrenz

University of Innsbruck

Klaus Schredelseker

Institute of Banking and Finance

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: June 20, 2017

Abstract

This paper analyzes empirically the relation between financial analysts' recommendation profitability and their forecast accuracy and shows that contrary to intuition the group of most successful recommendations is not associated with the highest accuracy on average. The finding that best performing recommendations are not the most accurate ones is stronger under conditions of asymmetric information and related to the impact of forecast consistency. Our results emphasize the importance of the extent to which forecasts are correlated, and contributes to the understanding of the lack of a clear-cut relation between accuracy and recommendation profitability.

Keywords: Forecast accuracy, Analysts' recommendation profitability, Information asymmetry

JEL Classification: G10, G14, M4

Suggested Citation

Lawrenz, Jochen and Schredelseker, Klaus and Weissensteiner, Alex, Evidence on the Empirical Relationship Between Recommendation Profitability and Forecast Accuracy (June 20, 2017). Available at SSRN: https://ssrn.com/abstract=2391671 or http://dx.doi.org/10.2139/ssrn.2391671

Jochen Lawrenz

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria
++43-512-507-7582 (Phone)

Klaus Schredelseker

Institute of Banking and Finance ( email )

Innsbruck, A-6020
Austria

Alex Weissensteiner (Contact Author)

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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