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On the investment value of sell-side analyst recommendation revisions in the UK

Author

Listed:
  • Chen Su

    (Newcastle University Business School)

  • Hanxiong Zhang

    (University of Lincoln)

  • Kenbata Bangassa

    (University of Liverpool Management School)

  • Nathan Lael Joseph

    (Aston University)

Abstract

This study conducts a comprehensive investigation into the investment value of sell-side analyst recommendation revisions in the UK, using a unique dataset from 1995 to 2013. Our rolling window analysis shows that, on average, upgrades fail to generate any significantly positive abnormal returns in any period of time, even before transaction costs. In addition, although downgrades could generate significantly negative abnormal gross returns over some periods of time, these observed significant returns disappear after accounting for transaction costs. Overall, our bootstrapping simulations confirm sell-side analysts’ lack of skill in making valuable up/downward revisions to cover the size of transaction costs, irrespective of whether these revisions are made by high-ranking brokerage houses or not. However, an industry-based analysis shows that, within two high-tech industry sectors, i.e., Health Care and Technology sectors, sell-side analysts possess certain skill in making valuable downgrades over some periods of time and, in particular, such skill is sufficient to offset transaction costs.

Suggested Citation

  • Chen Su & Hanxiong Zhang & Kenbata Bangassa & Nathan Lael Joseph, 2019. "On the investment value of sell-side analyst recommendation revisions in the UK," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 257-293, July.
    • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:1:d:10.1007_s11156-018-0749-y
    DOI: 10.1007/s11156-018-0749-y
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    Cited by:

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    More about this item

    Keywords

    Analyst recommendation revisions; Transaction costs; High-ranking brokerage houses; Industry; Bootstrapping simulations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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