Sell‐side analysts' recommendations a value or noise

Abstract

The main objective of the paper is to investigate the analysts’ recommendations’ value and to determine on which market the analysts have more predictive power that can be defined as an extent of a stock price’s reaction around a particular recommendation what leads to abnormal returns of the security. Such recommendations are significant in decision‐making whether to buy or to sell a particular stock. We observed 1,881 events from 168 companies traded at the London Stock Exchange and the New York Stock Exchange in a period between January 1, 2016, and April 31, 2019. We used an event study analysis and classical one‐factor market model to determine expected returns for a particular stock in an estimation window. It was found that both American and European Union markets are feasible to be outperformed by the analysts but it is impossible to highlight any of the markets as they behave almost identically around positive, neutral and negative recommendations.

The Influence of Research Reports on Stock Returns: The Mediating Effect of Machine-Learning-Based Investor Sentiment

“…ough there is consensus that news reports have predictive power for stock returns, there is still a lack of understanding of the specific impacts that different kinds of news have on the stock market [34]. As an important kind of news, research reports should also influence the stock market; this study will further investigate how research reports issued by securities companies affect stock returns by following prior researches [35,36].…”

“…Prior researches showed that both the recommendations in the research reports and the number of research reports covering certain stock will influence stock returns. Vukovic et al [35] pointed out that positive stock recommendations are likely to cause significant positive returns whereas negative recommendations lead to negative returns. Bouteska and Mili [9] provided evidence that shows stock returns are significantly related to recommendations in research reports.…”