Measuring the Added Value of Stock Recommendations
53 Pages Posted: 23 Jan 2016 Last revised: 24 Nov 2017
Date Written: November 20, 2017
Using data from the Stockholm Stock Exchange we study the value added by (as distinct from the abnormal returns to) analysts' recommendations. Recommending brokers' clients trade profitably around positive recommendations at the expense of other brokers’ clients. Significant profits come from transactions before recommendation dates. Value added is greatest for upgrades to large caps, and largely insignificant for downgrades and recommendations of small caps, despite high abnormal returns. Brokers making profitable recommendations generate abnormally high commission income, recouping much of their clients’ abnormal profits, and their abnormal commission income varies in line with the abnormal profits for their clients.
Keywords: Stock recommendations, Performance evaluation, Information leakages
JEL Classification: G14, G24, J44
Suggested Citation: Suggested Citation