Can Investors Profit from Security Analyst Recommendations? PDF Download

Author: Sung Jun Park
Publisher:
ISBN:
Category :
Languages : en
Pages : 23

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Book Description
This paper revisits the question of whether investors can benefit from consensus recommendations of stock market analysts in US equity markets. To examine the profitability net of transactions cost, we calculate transactions cost based on effective tick spread. We find that transactions cost becomes noticeably lower from 2001 and the strategy of purchasing 'strong buy' stocks and shorting 'strong sell' stocks yields the abnormal returns of 4.7-5.8% per year during the period of 2001-2016, even after accounting for transactions cost. We also find that 'strong buy (sell)' stocks are growth (value) firms and short-term winners (losers). We discuss our empirical results in the context of market efficiency.

Author: Ilona Mostipan
Publisher:
ISBN:
Category :
Languages : en
Pages : 53

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Book Description
There is heterogeneity in individual forecasts of any variable -- inflation, corporate earnings, etc. The standard consensus estimate takes a simple average of individual forecasts, implicitly treating each forecast as a common signal plus noise. If some individuals know more than others, then a consensus estimate is not necessarily the optimal way to combine forecasts. I show how a recently developed statistical technique can infer overlap in information across agents and I apply it to stock recommendations of sell-side analysts. I find a trading strategy that delivers an alpha of 2-3% on an annualized basis, net of transaction costs, suggesting that information diversity is prevalent, economically significant, and tradable.

Author: Brad M. Barber
Publisher:
ISBN:
Category :
Languages : en
Pages : 47

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Book Description
In this paper we document that an investment strategy based on the consensus (average) analyst recommendations of security analysts earns positive returns. For the period 1986-1996, a portfolio of stocks most highly recommended by analysts earned an annualized geometric mean return of 18.8 percent, while a portfolio of stocks least favorably recommended earned only 5.78 percent. (In comparison, an investment in a value-weighted market index earned an annualized geometric mean return of 14.5 percent.) Alternatively stated, purchasing stocks most highly recommended yielded a return of 102 basis points per month. The magnitude of this return is surprisingly large, and is far greater than the size effect (negative 16 basis points) and book-to-market effect (17 basis points) for the same period. Even after controlling for these two effects, as well as for price momentum, we show that the strategy of purchasing stocks most highly recommended and selling short those least favorably recommended yielded a return of 75 basis points per month. These results are robust to partitions by time period and overall market direction, and are most pronounced for small and medium-sized firms. The abnormal returns also persist when we allow a lapse of up to 15 days before acting on the investment recommendations. There is no extant theory of asset pricing that explains these results.

Author: Shinya Hanamura
Publisher:
ISBN:
Category :
Languages : en
Pages : 29

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Book Description
In this paper, we study how investors react to security analyst reports. Security companies earn profits by increasing investment volume in the stock market. They manipulate analyst reports through their security analysts and provide information to induce investors to buy stocks. The question is how do investors who know this fact react to such reports? We build a model of investor activity by assuming complementarity among investors who buy a stock. In other words, if an investor buys a stock when its stock price is believed to be high, this purchase induces other investors to buy, which results in increases the stock price. The first investor believes his or her belief to be correct. Based upon this complementarity in the stock market, we use the supermodular game and monotone comparative statics of Milgrom and Roberts (1990a). Then, we study the investment volumes, stock prices, and manipulation ratios of security companies, with the following findings. First, the security company always manipulates analyst reports for expected gains. Therefore, true information is not provided to the market, in which case the investment volume is lower than that in the first best case under perfect information. However, as analyst report precision increases, security companies relax their level of manipulation, although they easily manipulate analyst reports if the analyst precisely forecast the company profit. Under certain circumstances, manipulation leads to higher stock prices and stimulates company production, compared with the first best case. In this paper, we show that complementarity among investors explains the structure of the market, investor behavior, and company production levels in a bull market.

Author: Thomas William Phelps
Publisher: Echo Point Books & Media, LLC
ISBN:
Category : Business & Economics
Languages : en
Pages : 380

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Book Description
In 100 to 1 in the Stock Market, Thomas Phelps discloses the secrets and strategies to increasing your wealth one hundredfold through buy-and-hold investing. Unlike the short-term trading trends that are popular today, Phelps's highly logical, yet radical approach focuses on identifying compounding machines in public markets, buying their stocks, and holding these investments long term for at least ten years. In this indispensable guide, Phelps analyzes what made the big companies of his day so profitable for the diligent, long-term investor. You will learn how to identify and invest in profitable business models without visible growth ceilings that will quickly increase your earnings. Worth its weight in gold (and then some), 100 to 1 in the Stock Market illuminates the way to the path of long-term wealth for you and your heirs. With this classic, yet highly relevant approach, you will pick companies wisely and watch your investments soar! Thomas William Phelps (1902-1992) spent over 40 years in the investing world working as a private investor, columnist, analyst, and financial advisor. His illustrious investing career began just before the stock market crash in 1929 and lasted into the 1970s. In 1927, he began his career with The Wall Street Journal where he was a reporter, news editor, and chief. Beginning in 1936, he edited Barron's National Financial Weekly. From 1949 to 1960, he served as an assistant to the chairman and manager of the economics department at Socony Mobil Oil. Following this venture, he was a partner in the investment firm of Scudder, Stevens & Clark until his retirement in 1970. "One of the five greatest investment books you've never heard of" — The Daily Reckoning"Of all the books on investing that I've read over the years, 100 to 1 in the stock market one was at once, the most pleasurable and most challenging to my own beliefs." — Value Walk (ValueWalk.com) "For years we handed out copies of Mr. Phelps book as bonuses." — Timothy Lutts, Cabot Investing Advice, one of the largest investment advisories and newsletters in the country since 1970

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 524

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Author: Daniel Kreutzmann
Publisher: Logos Verlag Berlin GmbH
ISBN: 3832525297
Category : Business & Economics
Languages : en
Pages : 141

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Book Description
This thesis focuses on the three primitive value drivers of each company valuation model that is based on fundamental analysis: the discount rate, the expected future payoffs during the explicit forecasting period, and the terminal value at the end of the explicit forecasting period. While the first factor is analyzed theoretically by incorporating the government into the classical valuation framework, this thesis studies the other two factors by investigating forecasts made by professional investors, i.e. financial analysts. In the first part we show that the government's and the shareholders discount rate usually differ and analyze how the government's and shareholders different objectives lead to conflicts in the context of capital budgeting. The empirical part of this thesis shows that macroeconomic information is frequently used by financial analysts when updating their earnings expecations and that target price forecastsmade by financial analysts can be used to predict abnormal returns.

Author: Roger K. Loh
Publisher:
ISBN:
Category : Business analysts
Languages : en
Pages : 153

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Book Description
Abstract: I examine the role of sell-side security analysts in financial markets. The first essay addresses the stylized fact that investors' reaction to stock recommendations is often incomplete so that there is a predictable post-recommendation drift. I investigate whether investor inattention contributes to this drift by using turnover as a proxy for attention. I find that the recommendation drift of firms with low prior turnover is more than double in magnitude compared to that of firms with high prior turnover. Volume reactions around the recommendation show that investors fail to react promptly to recommendations issued on low attention stocks. Together, the evidence suggests that investor inattention is a plausible explanation for investors' underreaction to stock recommendations. The second essay studies conflict of interests in analyst research. Analyst research is alleged to be biased because analysts' employers underwrite securities for the firms covered. I argue that this analyst affiliation bias should be strongest for firms with a desire to over-inflate stock prices. Using stock recommendations data, I find that the analyst affiliation bias is on average pervasive across all firms in the bull-market years of 1994-2000. In the regulatory reform years of 2001-2006, only poorly governed firms, firms whose CEO wealth is highly sensitive to stock price, and negative prior return firms continue to exhibit the affiliation bias while the bias mostly disappears for all other firms. Examining the market's reaction around stock recommendations shows that the market does not sufficiently discount the fact that affiliated analyst optimism is more serious for some firms. The third essay investigates the market's response to trends and reversals in earnings surprises where earnings surprises are defined as firms' reported earnings less analysts' consensus forecasts. Trends are defined as consecutive same-signed earnings surprises while reversals occur when the sign of the most recent surprise differs from the prior surprises. I find significantly stronger return drift following trends than reversals. In comparison to reversals, trends are associated with greater predictability in subsequent analyst forecast revisions. These results are inconsistent with representativeness and conservatism causing return drift and could be consistent with the gambler's fallacy in Rabin (2002).

Author: SAMUEL THOMAS
Publisher: PHI Learning Pvt. Ltd.
ISBN: 8120348303
Category : Business & Economics
Languages : en
Pages : 257

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Book Description
This book on Security Analysis and Portfolio Management is a comprehensive source of information and analysis for students and practitioners. The distinguishing feature of the book is the detailed coverage of the regulatory environment, which consists of the current and updated rules and regulations, tax-environment and the practice of investment in the securities market in India. The book has been written keeping in mind the potential investor and an average student. It addresses all their doubts and concerns and makes them informed about the money market. This well organised, lucidly written text covers various aspects of the portfolio management, ranging from analysis to revision and then performance evaluation of the portfolio. Also discusses in detail the securities market, derivatives and risk evaluation that helps in understanding the trading system better and making quality investment decisions. Besides explaining the theoretical concepts of portfolio management, the book provides a detailed analysis of the latest development in the securities trading. It is meant to be a ‘single window book’ covering the SAPM syllabus of almost all the Indian Universities and institutes conducting MBA/PGDM or MCom programmes. The book will be equally useful for the students of ICAI, ICWAI as well as for investment courses conducted by NSE. Key Features • Easy to understand by the readers even if they have not been exposed to higher mathematics.• Vast coverage of the SAPM topics.• Several worked-out problems in relevant chapters to aid and assist students and teacher alike.• Detailed discussion on Indian stock and share market in context to the country’s current scenario.

Author: Aswath Damodaran
Publisher: John Wiley & Sons
ISBN: 1118235614
Category : Business & Economics
Languages : en
Pages : 615

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Book Description
The guide for investors who want a better understanding of investment strategies that have stood the test of time This thoroughly revised and updated edition of Investment Philosophies covers different investment philosophies and reveal the beliefs that underlie each one, the evidence on whether the strategies that arise from the philosophy actually produce results, and what an investor needs to bring to the table to make the philosophy work. The book covers a wealth of strategies including indexing, passive and activist value investing, growth investing, chart/technical analysis, market timing, arbitrage, and many more investment philosophies. Presents the tools needed to understand portfolio management and the variety of strategies available to achieve investment success Explores the process of creating and managing a portfolio Shows readers how to profit like successful value growth index investors Aswath Damodaran is a well-known academic and practitioner in finance who is an expert on different approaches to valuation and investment This vital resource examines various investing philosophies and provides you with helpful online resources and tools to fully investigate each investment philosophy and assess whether it is a philosophy that is appropriate for you.