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Journal of Accounting and Economics Vol. 41 No. 1-2 2006

Buys, holds, and sells: The distribution of investment banks’ stock ratings and the implications for the profitability of analysts’ recommendations

Brad M. Barber1; Reuven Lehavy2,3; Maureen F. McNichols4; Brett Trueman5

1 University of California, Davis · 2 University of Michigan–Ann Arbor · 3 Ross School · 4 Stanford University · 5 University of California, Los Angeles

Abstract

This paper analyzes the distribution of stock ratings at investment banks and brokerage firms and examines whether these distributions can predict the profitability of analysts’ recommendations. We document that the percentage of buys decreased steadily starting in mid-2000, likely due, at least partly, to the implementation of NASD Rule 2711, requiring the public dissemination of ratings distributions. Additionally, we find that a broker's ratings distribution can predict recommendation profitability. Upgrades to buy (downgrades to hold or sell) issued by brokers with the smallest percentage of buy recommendations significantly outperformed (underperformed) those of brokers with the greatest percentage of buys.

DOI
10.1016/j.jacceco.2005.10.001
Volume
41
Issue
1-2
Pages
87-117
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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