Evidence on the Empirical Relationship Between Recommendation Profitability and Forecast Accuracy
54 Pages Posted: 14 Feb 2014 Last revised: 1 Jul 2017
Date Written: June 20, 2017
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: Suggested Citation