Can Analysts Predict Rallies Better than Crashes?

16 Pages Posted: 16 Mar 2015

Date Written: June 4, 2014

Abstract

We use the copula approach to study the structure of dependence between sell-side analysts' consensus recommendations and subsequent security returns, with a focus on asymmetric tail dependence. We match monthly vintages of I/B/E/S recommendations for the period January to December 2011 with excess security returns during six months following recommendation issue. Using a mixed Gaussian-symmetrized Joe-Clayton copula model we find evidence to suggest that analysts can identify stocks that will substantially outperform, but not underperform relative to the market, and that their predictive ability is conditional on recommendation changes.

Keywords: analyst recommendations, copulas, nonlinear dependence, tail dependence, portfolio design

JEL Classification: C14, C51, C58, G12, G24

Suggested Citation

Medovikov, Ivan, Can Analysts Predict Rallies Better than Crashes? (June 4, 2014). Finance Research Letters, Vol. 11, No. 4, 2014. Available at SSRN: https://ssrn.com/abstract=2578351

Ivan Medovikov (Contact Author)

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada
9056885550 ext. 6148 (Phone)

HOME PAGE: http://www.brocku.ca/social-sciences/departments-and-centres/economics/faculty/ivan-medovikov

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