Do Brokerage Analysts' Recommendations Have Investment Value?



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    • The Amos Tuck School of Business Administration, Dartmouth College. Richard Thaler, Roni Michaely, and Charles McCulloch were extremely valuable advisors during this research. This article has also benefited from the comments of seminar participants at Cornell University, Vanderbilt University, University of Illinois, Penn State University, Tulane University, Case Western Reserve University, University of Colorado, and Dartmouth College. In particular, Doug Hanna, Cliff Asness, Harold Bierman, Warren Bailey, Robert Bloomfield, Linda Canina, Peter Carr, Werner De Bondt, Hemang Desai, John Elliott, Charles Lee, Joseph Paperman, Patricia Shangkuan, Chester Spatt, René Stulz, the editor, and two anonymous referees have greatly improved the article with valuable suggestions and insights. The author gratefully acknowledges the financial support of the Financial Management Association and the American Association of Individual Investors and data provided by First Call Corporation, Institutional Brokers Estimate System (I/B/E/S), and Kenneth French.


An analysis of new buy and sell recommendations of stocks by security analysts at major U.S. brokerage firms shows significant, systematic discrepancies between prerecommendation prices and eventual values. The initial return at the time of the recommendations is large, even though few recommendations coincide with new public news or provide previously unavailable facts. However, these initial price reactions are incomplete. For buy recommendations, the mean postevent drift is modest (+2.4%) and short-lived, but for sell recommendations, the drift is larger (−9.1%) and extends for six months. Analysts appear to have market timing and stock picking abilities.