Do Brokerage Analysts' Recommendations Have Investment Value?

J. OF FINANCE, Vol. 51 No. 1, March 1996

Posted: 20 Mar 1996

See all articles by Kent L. Womack

Kent L. Womack

University of Toronto - Rotman School of Management (Deceased)

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Abstract

An analysis of new buy and sell recommendations of stocks by security analysts at major U.S. brokerage firms shows significant, systematic discrepancies between precommendation prices and eventual values. The initial return at the time of the recommendations is large, even though few recommendations coincide with new public news or provide previously unavailable facts. However, these initial price reactions are incomplete. For buy recommendations, the mean post-event drift is modest (+2.4%) and short-lived, but for sell recommendations, the drift is larger (-9.1%) and extends for six months. Analysts appear to have market timing and stock picking abilities.

JEL Classification: G1

Suggested Citation

Womack, Kent L., Do Brokerage Analysts' Recommendations Have Investment Value?. J. OF FINANCE, Vol. 51 No. 1, March 1996. Available at SSRN: https://ssrn.com/abstract=7294

Kent L. Womack (Contact Author)

University of Toronto - Rotman School of Management (Deceased)

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