Measuring the Added Value of Stock Recommendations

53 Pages Posted: 23 Jan 2016 Last revised: 24 Nov 2017

Anders Anderson

Swedish House of Finance

Howard Jones

University of Oxford, Saïd Business School

Jose Vicente Martinez

University of Connecticut

Date Written: November 20, 2017

Abstract

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

Anderson, Anders and Jones, Howard and Martinez, Jose Vicente, Measuring the Added Value of Stock Recommendations (November 20, 2017). Saïd Business School WP 2016-04; 29th Australasian Finance and Banking Conference 2016; Swedish House of Finance Research Paper No. 16-06. Available at SSRN: https://ssrn.com/abstract=2719737 or http://dx.doi.org/10.2139/ssrn.2719737

Anders Anderson

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Howard Jones

University of Oxford, Saïd Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/research/people/Pages/HowardJones.aspx

Jose Vicente Martinez (Contact Author)

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

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