Who Follows the Prophets? Analysts' Stock Recommendations and the Trading Response of Large and Small Traders
38 Pages Posted: 2 Feb 2005
Date Written: March 2005
Abstract
Consistent with the industry practice of linking analyst compensation to their reputation, we find that large traders primarily follow the advice of star analysts and ignore the recommendations of non-star analysts. They buy (sell) stocks for which star analysts revise their recommendations upwards (downwards). Small traders are also privy to analyst advice - they respond quickly to recommendation upgrades by buying the upgraded stocks. However, they do not sell stocks that are downgraded. Small traders, thus, seem unwilling or unable to respond to unfavorable firm-specific news even when the investment implications of the news are reasonably obvious. Small traders are also less discriminating between star and non-star analysts. Our findings not only help understand the clientele of analysts' stock recommendations but also contribute to the literature that focuses on the response of small investors to firm-specific information events.
Keywords: Recommendations, trading, large traders, small traders
JEL Classification: D14, D21, G24, G29
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Can Investors Profit from the Prophets? Consensus Analyst Recommendations and Stock Returns
By Brad M. Barber, Reuven Lehavy, ...
-
Security Analysts' Career Concerns and Herding of Earnings Forecasts
By Jeffrey D. Kubik, Amit Solomon, ...
-
By Patricia Dechow, Amy P. Hutton, ...
-
Analyzing the Analysts: When Do Recommendations Add Value?
By Narasimhan Jegadeesh, Joonghyuk Kim, ...
-
An Empirical Analysis of Analysts' Target Prices: Short Term Informativeness and Long Term Dynamics
By Alon Brav and Reuven Lehavy
-
How Do Analysts Use Their Earnings Forecasts in Generating Stock Recommendations?
