Publication Type

Working Paper

Version

publishedVersion

Publication Date

1-2012

Abstract

Sell-side analysts employ different benchmarks when defining their stock recommendations. Forexample, a ‘buy’ for some brokers means the stock is expected to outperform its peers in the same sector(“industry benchmarkers”), while for other brokers it means the stock is expected to outperform themarket (“market benchmarkers”), or just some absolute return (“total benchmarkers”). We use thesebenchmarks to analyze the role of stock picking, industry picking and market timing in contributing to theperformance of stock recommendations. We are able to do so given that different benchmarks suggest theuse of different sets of abilities. Analysis of the relation between analysts’ recommendations and theirlong-term growth and earnings forecasts suggests that analysts indeed abide by their benchmarks. We findstrong evidence that the investment value of stock recommendations stems from analysts picking winnersand losers within a particular industry (stock picking) regardless of the declared benchmark. We find noevidence of either industry picking or market timing even for analysts whose benchmarks suggest theexistence of such skills. The research carries implications for the correct understanding and interpretationof sell-side research and its investment value.

Keywords

Analysts, Benchmarks, Stock Picking, Industry Picking, Market Timing

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

First Page

1

Last Page

54

Identifier

10.2139/ssrn.1961199

Publisher

SSRN

Additional URL

https://doi.org/10.2139/ssrn.1961199

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