Initiation of brokers’ recommendations, market predictors and stock returns

Stock recommendations and investment portfolio formation: A study in the Brazilian market

“…Other studies, such as Bjerring et al (1983), Elton et al (1986), Lim and Kong (2004), Chan et al (2006), and Moshirian et al (2009) revealed that the investors who followed the analysts' recommendations obtained significant and positive abnormal returns in the markets and samplings studied. Due to results indicated by studies developed in worldwide markets since the 1980s, the motivating question of this study is the following: is it possible for an investor to obtain positive abnormal returns by following the Brazilian capital market analysts' stock recommendations?…”

“…The opinions of capital market analysts were object of study of several researches, such as Bjerring, Lakonishok, and Vermaelen (1983), Elton, Gruber, and Grossman (1986), Womack (1996), Lin and McNichols (1998), Barber, Lehavy, McNichols, and Trueman (2001), Jegadeesh, Kim, Krische, and Lee (2004), Lim and Kong (2004), Chan, Brown, and Ho (2006), Moshirian, Ng, and Wu (2009), Hall and Tacon (2010), Sidhu and Tan (2011) and Hobbs and Singh (2015). Some used the recommendations, target prices, and profit previews per stocks to identify the impact of those predictions and recommendations in the stock prices, while others verified the analysts' ability to select overestimated and underestimated stocks, through share investment recommendations.…”

“…According to Stickel (1995), the brokerage firms' buy and sell recommendations are of interest to individual investors, investment fund managers, brokers and academic researchers. Chan et al (2006) also highlighted the significant expenditures deployed by the brokerage firms aiming at empowering their analysts so that they produce investment recommendations.…”

Can We Trust Financial Analysts? Reliability of Stock Recommendations and Firm-Specific Characteristics

“…Although some researchers have suggested that investors cannot benefit from analysts' recommendations (e.g., Logue & Tuttle, 1973;Bidwell, 1977;Menendez-Requejo, 2005;Erdogan, Palmon, & Yezegel, 2011), numerous analyses have documented a significant price reaction to stock recommendations by exploring the existence of abnormal stock returns (Womack, 1996;Barber, Lehavy, McNichols, & Trueman, 2001;Jegadeesh, Kim, Krische, & Lee, 2004;Lidèn, 2007). Several specific aspects of this issue have been addressed, such as stock price reactions to recommendation revisions (Ivković & Jegadeesh, 2004;Elton, Gruber, & Grossman., 1986;Jegadeesh & Kim, 2006;Chang & Chan, 2008), the difference between returns on initiating and continuing recommendations (Chan, Brown, & Ho, 2006), abnormal returns subsequent to stock recommendations released to a limited clientele (Schlumpf, Schmid, & Zimmermann, 2008), stock rating distributions over time for the prediction of future recommendations (Barber, Lehavy, McNichols, & Trueman, 2006) and various determinants of stock recommendations that affect price performance, including the strength of the recommendation, the analysts' reputations and the size of the brokerage house (Stickel, 1995). Research literature have furthermore explored effects of stock recommendations on different phenomena, such as brokerage firm trading (Irvine, 2004), earnings management (Abaranell & Lehavy, 2003) and the tendency of analysts to follow consensus forecasts according to the "herd behaviour" phenomenon (Jegadeesh & Kim, 2010;Lin, Chen, & Chen, 2011).…”

Analysts’ recommendations: from which signal does the market take its lead?

“…Such an approach implicitly recognizes that an analyst's previous view (or, in this case, lack thereof) may be important. Examples of this research in the US include Peterson (1987), McNichols and O'Brien (1997), Sayrak and Dhiensiri (2002) and Irvine (2003), and, in Australia, Chan et al (2006).…”