Time to Fulfilment of Stock Recommendations Based on Technical Analysis: A Survival Analysis Approach

Abstract

Stock recommendations based on technical analysis have been evaluated by researchers in terms of the abnormal excess returns generated compared to some benchmark return. Here, instead of looking at the magnitude of excess returns, we study the liquidity of trading strategies based on analyst recommendations as an indicator of their efficacy. We use an event study methodology for 403 technical calls published over a period of four years from 2011 to 2015 on an on-line finance portal. Parametric survival models were built to understand the factors that might affect the time taken for a stock to reach the targeted sell/buy price. Lower targeted returns, a bullish market trend, and greater volumes of trading in the pre-recommendation period lead to smaller times to fulfillment for technical calls. However, consistent with other studies, we find that analysts using technical analysis have not been able to provide recommendations that consistently yield high returns in a short period of time.

Keywords: Analyst Recommendations, Technical Analysis, Survival Analysis, Indian Stock Market, Liquidity

JEL Classification: G14, C41