Origin of Outperformance for Stock Recommendations by Sell-Side Analysts

65 Pages Posted: 24 Nov 2020

See all articles by Yury Kucheev

Yury Kucheev

KTH Royal Institute of Technology

Tomas Sorensson

KTH Royal Institute of Technology - Industrial Engineering and Management; Swedish House of Finance; KTH Royal Institute of Technology - Industrial Engineering and Management

Date Written: January 31, 2020

Abstract

We examine the sources of added value in analysts’ recommendations by investigating the detailed content of sell-side analysts’ recommendation-based portfolios. We clarify whether the well-documented positive excess returns earned by recommendation portfolios span all market sectors and size deciles during the period 2002-2017. Our study documents that the excess returns are explained primarily by the analysts’ within-sector stock-picking ability and partially by the effect of overweighting in industries, such as Materials, Consumer Discretionary and Information Technology, and in small-cap stocks. The outperformance of Star analysts stems from superior information content in their recommendations, which contain both within- and across-industry information.

Keywords: Alpha, Sell-Side Analyst Recommendations, Attribution Analysis, Institutional Investor, StarMine, the Wall Street Journal

JEL Classification: G1, G2

Suggested Citation

Kucheev, Yury and Sorensson, Tomas, Origin of Outperformance for Stock Recommendations by Sell-Side Analysts (January 31, 2020). Available at SSRN: https://ssrn.com/abstract=3705969 or http://dx.doi.org/10.2139/ssrn.3705969

Yury Kucheev (Contact Author)

KTH Royal Institute of Technology ( email )

Lindstedtsvägen 30
Stockholm, SE-100 44
Sweden

Tomas Sorensson

KTH Royal Institute of Technology - Industrial Engineering and Management ( email )

Lindstedtsvägen 30-100 44
Stockholm
Sweden
+46-(0)8-790 87 39 (Phone)
+46-(0)8-790 67 41 (Fax)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

KTH Royal Institute of Technology - Industrial Engineering and Management ( email )

Lindstedtsvägen 30-100 44
Stockholm
Sweden
+46-(0)8-790 87 39 (Phone)
+46-(0)8-790 67 41 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
313
PlumX Metrics