Do Retail Investors Pay Attention to Sell-Side Analysts?

Abstract

We study the relation between retail trading and sell-side analysts’ revisions in recommendations, price targets, and EPS forecasts. Retail investors respond strongly to revisions in recommendations and price targets, increasing trading in the direction of the revision. Retail investors respond to EPS revisions, but buy more after positive and negative revisions, suggesting they better understand more explicit metrics about investment outcomes. Retail trades earn higher returns when aligned with revisions. Our findings shed light on earlier studies that find retail trading can be informed and suggest retail investors are one channel through which analysts’ information is transmitted into prices.