The Cross-Section of Analyst Recommendations

39 Pages Posted: 15 Sep 2004

See all articles by Avanidhar Subrahmanyam

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Sorin M. Sorescu

Texas A&M University - Department of Finance

Date Written: September 13, 2004

Abstract

We analyze the relation between the price reaction to analysts' revisions and the attributes (years of experience, reputation of the analysts' brokerage houses) of the analysts making the recommendations. These attributes form proxies for analyst ability that we validate by documenting that revisions by high-ability analysts outperform those by low-ability ones. In addition, we find evidence of return persistence following small revisions by high-ability analysts and the opposite return pattern following large revisions of low-ability analysts. These results are consistent with the Griffin and Tversky (1992) argument that agents place emphasis on the strength of the signal (the dramatic nature of the event) and may de-emphasize the weight (the ability of the analyst making the recommendation). Our study provides an empirical link between evidence on individual decision-making and stock market returns, and also helps promote an understanding of the analyst industry as well as its interaction with the investing population.

Keywords: Analysts, return reactions, stock recommendations

JEL Classification: G12, G14

Suggested Citation

Subrahmanyam, Avanidhar and Sorescu, Sorin M., The Cross-Section of Analyst Recommendations (September 13, 2004). Available at SSRN: https://ssrn.com/abstract=590123 or http://dx.doi.org/10.2139/ssrn.590123

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Sorin M. Sorescu

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

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