Analyst recommendations: do strong buy recommendations add value

Abstract

In this research, the value of strong-buy analyst recommendations is thoroughly examined across ten different countries. Statistical tests and regressions were implemented, showing that long-only portfolio strategies based on strong-buy analyst recommendations lead to statistically significant excess returns in Australia, Germany and South Africa. However, due to analysts’ overconfidence bias in the other countries studied, positive excess return cannot be achieved. Contrary to previous studies, only strong-buy analyst recommendations were used, and minimum transaction costs were appropriately accounted to calculated investors’ excess return from following strong-buy analyst recommendations.