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Do local analysts have an informational advantage in forecasting stock returns? Evidence from the German DAX30

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  • T. Hendricks
  • B. Kempa
  • C. Pierdzioch

Abstract

Utilizing data from the German DAX30 stock index, we investigate whether local analysts have an informational advantage in forecasting stock returns. We analyze whether banks’ buy and sell recommendations improve on the out-of-sample predictability of daily stock returns and the market-timing ability of investors who base their decisions on such recommendations. We find that, indeed, in a few cases German banks do have better stock-forecasting ability for daily stock returns than do foreign banks. However, the value added of bank recommendations is generally small and sensitive to the model-selection criterion used by an investor in setting up a forecasting model for stock returns. Copyright Swiss Society for Financial Market Research 2010

Suggested Citation

  • T. Hendricks & B. Kempa & C. Pierdzioch, 2010. "Do local analysts have an informational advantage in forecasting stock returns? Evidence from the German DAX30," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 24(2), pages 137-158, June.
  • Handle: RePEc:kap:fmktpm:v:24:y:2010:i:2:p:137-158
    DOI: 10.1007/s11408-010-0129-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Forecasting stock returns; Bank stock recommendations; Local analysts; C53; E44; G11;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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