Discrete Expectational Data and Portfolio Performance



In this article we examine the information content in analysts' recommendations which are made on a five-point buy, hold, or sell scale. Our data set includes data on 10,000 forecasts per month. Unlike most prior studies, our data set does not suffer from selection or survivorship bias. We find information in analysts' changes in recommendations. Approximately 4.5% extra return can be earned by purchasing new buys rather than new sells.