Can Investors Profit from Security Analyst Recommendations?

23 Pages Posted: 23 Aug 2018

See all articles by Sung Jun Park

Sung Jun Park

Yonsei University - Department of Economics

Ki Young Park

Yonsei University

Date Written: August 13, 2018

Abstract

This paper revisits the question of whether investors can benefit from consensus recommendations of stock market analysts in US equity markets. To examine the profitability net of transactions cost, we calculate transactions cost based on effective tick spread. We find that transactions cost becomes noticeably lower from 2001 and the strategy of purchasing 'strong buy' stocks and shorting 'strong sell' stocks yields the abnormal returns of 4.7-5.8% per year during the period of 2001-2016, even after accounting for transactions cost. We also find that 'strong buy (sell)' stocks are growth (value) firms and short-term winners (losers). We discuss our empirical results in the context of market efficiency.

Keywords: consensus recommendations, transactions cost, asset pricing, market efficiency

JEL Classification: G11, G12, G14

Suggested Citation

Park, Sung Jun and Park, Ki Young, Can Investors Profit from Security Analyst Recommendations? (August 13, 2018). Available at SSRN: https://ssrn.com/abstract=3230454 or http://dx.doi.org/10.2139/ssrn.3230454

Sung Jun Park

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

Ki Young Park (Contact Author)

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

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