The Investment Value Of The Frequency Of Analyst Recommendation Changes For The Ordinary Investor

ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
Jeffrey Hobbs PhD, Professor (Creator)
Institution
Appalachian State University (ASU )
Web Site: https://library.appstate.edu/

Abstract: We find that analysts who frequently revise their stock recommendations outperform those who do not. This result holds for portfolios formed on the basis of favorable changes in recommendations as well as unfavorable changes. The frequency of revision captures information incremental to factors known to identify superior recommendations. Although much of the frequently revising analysts' advantage follows events proxied by abnormally high returns or trading volume, it does not appear to derive from more public events such as earnings announcements. Further, these analysts outperform their counterparts even over the short-run, suggesting that this is not simply a “quantity over quality” phenomenon. In summary, our results imply that the superior profitability of frequently revising analysts emanates at least partly from their ability to generate private information using their superior skill. Overall, the ordinary investor is better off following the advice of analysts who revise their recommendations more frequently.

Additional Information

Publication
Hobbs, J., et al. (2012). "The investment value of the frequency of analyst recommendation changes for the ordinary investor." Journal of Empirical Finance 19(1): 94-108. https://doi.org/10.1016/j.jempfin.2011.09.006. Publisher version of record available at: https://www.sciencedirect.com/science/article/pii/S0927539811000697
Language: English
Date: 2012
Keywords
Analyst recommendation's profitability, Frequency of recommendation changes, Market efficiency

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