Content area
Full Text
Stock market analysts, the research units of brokerage houses and journalists-provide investors with recommendations about buying and selling potential stocks that are considered to have investment value. Financial periodicals publish these recommendations frequently (at least twice a week), thus serving as an important source of information, especially for retail investors. In recent years, these recommendations have been gaining popularity in the Indian context. This paper examines investment value and market impact of more than 1000 analyst recommendations relating to Indian stock market. This study reveals that analysts are more biased Buy rather than Sell recommenda tions. Thes e recommendations have towards investment value in a short-term horizon of three-months from the date of recommendation. It is clear that Buy recommendations appear to be more valuable than Sell recommendations. However, the predictive ability measured by the hit ratio of analysts is not more than 50%.
Key Words: Abnormal Stock Returns, Analyst Recommendations, Indian Stock Market, Journalist Recommendations, Market Efficiency
(ProQuest: ... denotes formulae omitted.)
INTRODUCTION
In addition to the reported financial accounting information and the information on corporate actions, the recommendations of stock market analysts play a critical role in influencing stock prices. Various stock broking houses and analysts provide Buy and Sell recommendations that are perceived to have investment value. Stock market analyst recommendations published in newspapers constitute the principal source of information for investors and other financial market participants in portfolio structuring and the formulation of trading strategies.
The Efficient Market Hypothesis asserts that financial markets are informationally efficient, and that investors cannot consistently achieve excess returns compared to the market on a risk-adjusted basis (Dimson and Mussavian, 1998). As analysts are not insiders, they should not be privy to any firm-level information that is otherwise not available to the public. Several prior studies have challenged this hypothesis. The predictive content of analyst pronouncements for future stock returns was studied by Barber and Loeffler (1993) and Dimson and Marsh (1984). Womack (1996) and Michaely and Womack (1999) found evidence of significant abnormal returns following shifts in opinions about stocks by analysts'. Stickel (1995) reported that analyst upgrades (or downgrades) were associated with positive (or negative) announcement period returns and accompanying long-term drift over the period 1988-91. Brennan, Jegadeesh and Swaminathan (1993) and Green...