Analyst Recommendations and Mispricing Across the Globe
81 Pages Posted: 13 Oct 2020 Last revised: 22 Apr 2022
Date Written: October 5, 2020
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: Suggested Citation