Are Analyst Trade Ideas Valuable?
Charles A. Dice Center Working Paper No. 2019-15
54 Pages Posted: 8 Jul 2019
Date Written: July 2, 2019
Using a novel database, we show that the stock-price impact of analyst trade ideas is at least as large as the impact of stock recommendation, target price, and earnings forecast changes, and that investors following trade ideas can earn significant abnormal returns. Trade ideas triggered by forthcoming firm catalyst events are more informative than ideas exploiting temporary mispricing. Institutional investors trade in the direction of trade ideas and commission-paying institutional clients do so earlier than non-clients. Analysts generating trade ideas are more established and are more likely to produce ideas for stocks with high dollar trading commissions in their coverage universe.
Keywords: analyst research, trade ideas, mutual funds, institutional investors, broker commissions, soft-dollar payments, stock mispricing, stock recommendations
JEL Classification: G11, G12, G14, G20, G23, G24
Suggested Citation: Suggested Citation