Measuring the added value of stock recommendations

Journal article

Using data from the Stockholm Stock Exchange (SSE), we study the value added by (as distinct from the abnormal returns to) analysts’ recommendations. Recommending brokers’ clients trade profitably around positive recommendations at the expense of other brokers’ clients. Significant profits come from transactions before recommendation dates. Value added is greatest for upgrades to large caps, and largely insignificant for downgrades and recommendations of small caps, despite high abnormal returns. Brokers making profitable recommendations generate abnormally high commission income, recouping much of their clients’ abnormal profits, and their abnormal commission income varies in line with the abnormal profits for their clients.

Authors: Anderson, A; Jones, H; Martinez, JV

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Cambridge University Press
• Journal: Journal of Financial and Quantitative Analysis
• Volume: 55
• Issue: 6
• Pages: 1915-1945
• Publication date: 2019-05-23
• Acceptance date: 2019-02-01
• DOI: 10.1017/S0022109019000413
• EISSN: 1756-6916
• ISSN: 0022-1090
• Language: English
• Keywords: performance evaluation; information leakages; stock recommendations