Analyst Recommendations and Mispricing Across the Globe

81 Pages Posted: 13 Oct 2020 Last revised: 22 Apr 2022

See all articles by Vitor Azevedo

Vitor Azevedo

Technische Universität Kaiserslautern; Department of Financial Management - Technical University Kaiserslautern

Sebastian Müller

Technische Universität München (TUM) - TUM School of Management

Date Written: October 5, 2020

Abstract

We examine the value of analyst recommendations across 45 countries and 3.8 million firm-month observations from 1994 to 2019. Recommendation-based portfolio strategies lead to highly significant (insignificant) abnormal returns in international markets (in the U.S.). In line with limits-to-arbitrage-based explanations of market mispricing, we find higher abnormal recommendation-based strategy returns in countries with less developed financial markets. Consistent with analyst overconfidence bias, we also find that recommendations are less profitable and less aligned with composite mispricing scores for stocks in individualistic countries. Collectively, our evidence suggests that analyst recommendations provide more value to investors than previously thought.

Keywords: Analysts, analyst recommendations, anomalies, international stock markets, market efficiency.

JEL Classification: G12, G29, M41

Suggested Citation

Azevedo, Vitor and Müller, Sebastian, Analyst Recommendations and Mispricing Across the Globe (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705141 or http://dx.doi.org/10.2139/ssrn.3705141

Vitor Azevedo (Contact Author)

Technische Universität Kaiserslautern ( email )

Gottlieb-Daimler-Straße 47
Kaiserslautern, DE 67663
+49 (0) 631 205 4105 (Phone)
85521 (Fax)

Department of Financial Management - Technical University Kaiserslautern ( email )

Kaiserslautern, 67663
Germany

Sebastian Müller

Technische Universität München (TUM) - TUM School of Management ( email )

Germany

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