Projected earnings accuracy and the profitability of stock recommendations
AbstractAnalysts providing more accurate earnings forecasts also issue more profitable recommendations. We demonstrate how investors can profit from this contemporaneous link by differentiating between able and lucky analysts. In line with previous studies, we find that past track records alone are not sufficient to identify profitable recommendations. Only skilled analysts working in a superior environment provide consistently profitable recommendations. The overall profitability of their recommendations is not driven by a post-announcement drift effect. We find that an implementable, i.e. look-ahead bias free, trading strategy based on the projected - rather than past - earnings accuracy yields substantial excess returns. --
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Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-17 [rev.].
Date of creation: 2011
Date of revision:
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More information through EDIRC
analysts; portfolio management; profitability of recommendations;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- 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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