Are Analyst Short-Term Trade Ideas Valuable?
Charles A. Dice Center Working Paper No. 2019-15
66 Pages Posted: 8 Jul 2019 Last revised: 30 Jun 2021
Date Written: June 29, 2021
Short-term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find trade ideas have a stock-price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm’s management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short-term stock picking skills.
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