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Can Investors Profit from Security Analyst Recommendations?

Author

Listed:
  • Sung Jun Park

    (Yonsei University)

  • Ki Young Park

    (Yonsei University)

Abstract

This paper revisits the question of whether investors can benefit from consensus recom- mendations of stock market analysts in US equity markets. To examine the profitability net of transactions cost, we calculate transactions cost based on effective tick spread. We find that transactions cost becomes noticeably lower from 2001 and the strategy of purchasing 'strong buy' stocks and shorting 'strong sell' stocks yields the abnormal returns of 4.7-5.8% per year during the period of 2001-2016, even after accounting for transactions cost. We also find that 'strong buy (sell)' stocks are growth (value) firms and short-term winners (losers). We discuss our empirical results in the context of market efficiency.

Suggested Citation

  • Sung Jun Park & Ki Young Park, 2018. "Can Investors Profit from Security Analyst Recommendations?," Working papers 2018rwp-131, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2018rwp-131
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    Cited by:

    1. Jaideep Singh & Matloob Khushi, 2021. "Feature Learning for Stock Price Prediction Shows a Significant Role of Analyst Rating," Papers 2103.09106, arXiv.org.

    More about this item

    Keywords

    consensus recommendations; transactions cost; asset pricing; market efficiency;
    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

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