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Are Analyst Short‐Term Trade Ideas Valuable?

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  • JUSTIN BIRRU
  • SINAN GOKKAYA
  • XI LIU
  • RENÉ M. STULZ

Abstract

Short‐term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find that trade ideas have a stock price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm's management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short‐term stock‐picking skills.

Suggested Citation

  • Justin Birru & Sinan Gokkaya & Xi Liu & René M. Stulz, 2022. "Are Analyst Short‐Term Trade Ideas Valuable?," Journal of Finance, American Finance Association, vol. 77(3), pages 1829-1875, June.
    • Handle: RePEc:bla:jfinan:v:77:y:2022:i:3:p:1829-1875
    DOI: 10.1111/jofi.13130
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