Abstract
We investigate whether security analysts exhibit persistence in their stock picking ability. We find that analysts whose recommendation revisions earned the most (least) excess returns in the past continue to outperform (underperform) in the future. Further, the market recognizes these performance differences in the five-day period surrounding the recommendation revision. This market reaction, however, is incomplete. Excess returns in the one and three trading months following the revision are significant and positively associated with analysts' prior performance. However, a trading strategy taking long (short) positions in recommendation upgrades (downgrades) conditional on analysts' prior performance is unprofitable.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 67-91 |
| Number of pages | 25 |
| Journal | Journal of Financial Economics |
| Volume | 74 |
| Issue number | 1 |
| DOIs | |
| State | Published - Oct 2004 |
Funding
We thank Andrew Alford, Gregor Andrade, Sudipta Basu, Alon Brav, Kent Daniel, Cristi Gleason, John Graham, Campbell Harvey, Jennifer Juergens, Patricia O’Brien, Andrew Roper, William Schwert, an anonymous referee, and workshop participants at Emory University, Harvard University, the University of Southern California, the University of Wisconsin at Madison, and the 2002 European Finance Association Annual Meeting (Berlin) for helpful comments. We appreciate the financial support of the Fuqua School of Business at Duke University and the Kellogg School of Management at Northwestern University. Analyst recommendations are from Zacks Investment Research. Errors or omissions are our responsibility.
Keywords
- Persistence
- Security analysts
- Stock recommendations
- Trading strategy
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management