The Origin of Outperformance for Stock Recommendations by Sell-Side Analysts
45 Pages Posted: 8 Apr 2016 Last revised: 22 Aug 2018
Date Written: April 30, 2018
Abstract
This paper examines a common methodology of analysts’ recommendation portfolios for measuring the investment value of sell-side analysts’ recommendations. Given that more than 80% of the studied portfolios are concentrated in the three smallest size deciles, we document that the portfolios’ abnormal returns are explained primarily by the analysts’ stock picking ability and only partially by the effect of an overweight in small-cap stocks. We identify the sources of overall value-added performance by analyzing the weights assigned to market-cap size deciles and industry sectors, and by performing an attribution analysis.
Keywords: Alpha, Sell-side analyst recommendations, Attribution analysis, StarMine, Institutional Investor, The Wall Street Journal
JEL Classification: G1, G2
Suggested Citation: Suggested Citation