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Can Analysts Predict Rallies Better Than Crashes?

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  • Medovikov, Ivan

Abstract

We use the copula approach to study the structure of dependence between sell-side analysts' consensus recommendations and subsequent security returns, with a focus on asymmetric tail dependence. We match monthly vintages of I/B/E/S recommendations for the period January to December 2011 with excess security returns during six months following recommendation issue. Using a symmetrized Joe-Clayton Copula (SJC) model we find evidence to suggest that analysts can identify stocks that will substantially outperform, but not underperform relative to the market, and that their predictive ability is conditional on recommendation changes.

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  • Medovikov, Ivan, 2014. "Can Analysts Predict Rallies Better Than Crashes?," MPRA Paper 55942, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55942
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    Cited by:

    1. I. Medovikov S. & И. Медовиков С., 2019. "Могут ли фондовые аналитики предсказать рыночный риск? Новые сведения из теории копулы // Can Stock Analysts Predict Market Risk? New Evidence from Copula Theory," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 23(1), pages 38-48.
    2. Roger, Tristan, 2017. "Reporting errors in the I/B/E/S earnings forecast database: J. Doe vs. J. Doe," Finance Research Letters, Elsevier, vol. 20(C), pages 170-176.
    3. Taussig, Roi D., 2022. "Market prices, analysts' predictions, and Covid19," Finance Research Letters, Elsevier, vol. 46(PA).

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    More about this item

    Keywords

    Analyst recommendations; copulas; non-linear dependence;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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