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The Predictive Content of Aggregate Analyst Recommendations

Authors

  • JOHN S. HOWE,

    1. University of Missouri
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  • EMRE UNLU,

    1. University of Nebraska—Lincoln. We thank Leslie Boni, Paul Brockman, Mike Finke, Grace Hao, Inder Khurana, Xiumin Martin, Brett Olson, Reynolde Pereira, Andy Puckett, Maria Schutte, Ken Shaw, Douglas Skinner (the editor), James Weston, an anonymous referee, and seminar participants at the University of Missouri and the 2007 American Finance Association Annual Meetings for helpful comments. We also thank I/B/E/S for providing us the analyst recommendation data.
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  • XUEMIN (STERLING) YAN

    1. University of Missouri
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ABSTRACT

Using more than 350,000 sell-side analyst recommendations from January 1994 to August 2006, this paper examines the predictive content of aggregate analyst recommendations. We find that changes in aggregate analyst recommendations forecast future market excess returns after controlling for macroeconomic variables that have been shown to influence market returns. Similarly, changes in industry-aggregated analyst recommendations predict future industry returns. Changes in aggregate analyst recommendations also predict one-quarter-ahead aggregate earnings growth. Overall, our results suggest that analyst recommendations contain market- and industry-level information about future returns and earnings.

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