The Origin of Outperformance for Stock Recommendations by Sell-Side Analysts

45 Pages Posted: 8 Apr 2016 Last revised: 22 Aug 2018

See all articles by Yury Kucheev

Yury Kucheev

KTH Royal Institute of Technology

Tomas Sorensson

KTH Royal Institute of Technology - Industrial Engineering and Management; Swedish House of Finance; KTH Royal Institute of Technology - Industrial Engineering and Management

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

Kucheev, Yury and Sorensson, Tomas, The Origin of Outperformance for Stock Recommendations by Sell-Side Analysts (April 30, 2018). Swedish House of Finance Research Paper No. 16-10, Available at SSRN: https://ssrn.com/abstract=2760277 or http://dx.doi.org/10.2139/ssrn.2760277

Yury Kucheev

KTH Royal Institute of Technology ( email )

Lindstedtsvägen 30
Stockholm, SE-100 44
Sweden

Tomas Sorensson (Contact Author)

KTH Royal Institute of Technology - Industrial Engineering and Management ( email )

Lindstedtsvägen 30-100 44
Stockholm
Sweden
+46-(0)8-790 87 39 (Phone)
+46-(0)8-790 67 41 (Fax)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

KTH Royal Institute of Technology - Industrial Engineering and Management ( email )

Lindstedtsvägen 30-100 44
Stockholm
Sweden
+46-(0)8-790 87 39 (Phone)
+46-(0)8-790 67 41 (Fax)

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