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Analyst recommendations as an investment tool. Are there any prophets?
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Autores
Orientador(es)
Resumo(s)
The aim of this research is to test whether analysts recommendations can be used as a
tool in decision making process. To test this hypothesis, five portfolios are built following
the consensus on the constituents of the Standard and Poor‘s 500 Index. I find that the
top-rated stocks do not over-perform the market. Furthermore, the former are beaten, in
terms of risk-adjusted performance, by portfolios based on less recommended stocks. I
find that analysts recommendations follow specific patterns with regards to exposure to
market risk, book-to-market factor and performance momentum. Finally, a trading strategy,
based on the change in the average consensus level is presented. I find that it is possible
to generate positive Sharpe Ratios by extending strategys holding period to a maximum of
three months.
Descrição
Palavras-chave
Trading strategy Analyst recommendations Efficient market hypothesis Abnor- mal returns.