Analyzing the Analysts: When Do Recommendations Add Value?

Narasimhan Jegadeesh; Joonghyuk Kim; Susan D. Krische; Charles M. C. Lee

doi:10.1111/j.1540-6261.2004.00657.x

Journal of Finance Vol. 59 No. 3 2004

Analyzing the Analysts: When Do Recommendations Add Value?

Narasimhan Jegadeesh^{1,2,3,4,5,6,7,8,9}; Joonghyuk Kim^{1,2,3,4,5,6,7,8,9}; Susan D. Krische^{1,2,3,4,5,6,7,8,9}; Charles M. C. Lee^{1,2,3,4,10,5,6,7,8,9}

¹ University of Southern California · ² University of Illinois Urbana-Champaign · ³ Georgetown University · ⁴ Cornell University · ⁵ University of Rochester · ⁶ Case Western Reserve University · ⁷ Rice University · ⁸ University of Pennsylvania · ⁹ University of California, Berkeley · ¹⁰ Issues Research

open access

Abstract

We show that analysts from sell‐side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of other predictive variables.

DOI: 10.1111/j.1540-6261.2004.00657.x
Volume: 59
Issue: 3
Pages: 1083-1124
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Analyzing the Analysts: When Do Recommendations Add Value?

Abstract

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