Portfolio Strategies Based on Analysts' Consensus

27 Pages Posted: 6 Mar 2005 Last revised: 7 Feb 2012

See all articles by Enrico Maria Cervellati

Enrico Maria Cervellati

Department of Management - Ca' Foscari University of Venice

Antonio Carlo Francesco Della Bina

University of Bologna - Department of Management

Pierpaolo Pattitoni

University of Bologna - Department of Statistical Sciences ; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Date Written: December 31, 2005

Abstract

Financial analysts' research activity seems to be important for investors in their investment decisions. Understanding if financial analysts' reports can influence the market and the degree of reliability of their forecasts has been a theme lively debated in the academic literature but also in the press, mainly because of recent financial scandals. The main objective of the paper is to calculate the investment value of financial analysts' recommendations on companies listed in the Italian Stock Exchange and to empirically verify the possibility of profiting from relying on the average consensus of recommendations. We have enclosed in the analysis all the 16,634 reports issued between the 1st January 1999 and the 23rd July 2004 and available on the website of the Italian Stock Exchange. We have classified companies by quarter, based on the average consensus by analysts, and we have formed five portfolios based on this consensus. Furthermore, we have calculated the excess returns of each portfolio in each quarter. Our results seem to suggest that analysts' rating have indeed investment value, even if investors should carefully consider neutral recommendations that in reality seem to be negative one. These results also give some interesting regulatory suggestions.

Keywords: Analysts, Consensus, Market Efficiency, Portfolio Strategies, Barber

JEL Classification: G14

Suggested Citation

Cervellati, Enrico Maria and Della Bina, Antonio Carlo Francesco and Pattitoni, Pierpaolo, Portfolio Strategies Based on Analysts' Consensus (December 31, 2005). Available at SSRN: https://ssrn.com/abstract=676873 or http://dx.doi.org/10.2139/ssrn.676873

Enrico Maria Cervellati (Contact Author)

Department of Management - Ca' Foscari University of Venice

Fondamenta San Giobbe 873 Cannaregio
Venice, Venice 30121
Italy

Antonio Carlo Francesco Della Bina

University of Bologna - Department of Management ( email )

Piazza Scaravilli 1
Bologna, Bologna 40126
Italy

Pierpaolo Pattitoni

University of Bologna - Department of Statistical Sciences ( email )

Via Belle Arti 41
Bologna, 40126
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

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