Does the Market Recognize Which Analyst Reports are Influential?
77 Pages Posted: 8 Jan 2016 Last revised: 20 Mar 2018
Date Written: January 6, 2017
Loh and Stulz (2011) found which characteristics drive influential analyst revisions in the period between 1993 and 2007. With a model that real predicts influential revisions out-of-sample, we find that the market was slow in incorporating this information. We fine-tune their model and we form long-short portfolios that earn an alpha of 2% per month between 1999 and 2013 based on the predicted influential revisions. Contrary to previous evidence, this strategy survives to substantial transaction costs. Hence, recommendations are an important means by which analysts assimilate information into stock prices.
Keywords: Influential recommendations, Investment strategy, Prediction, Signaling
JEL Classification: G11, G14
Suggested Citation: Suggested Citation