On the investment value of sell‑side analyst recommendation revisions in the UK

Su, Chen and Zhang, Hanxiong and Bangassa, Kenbata and Joseph, Nathan (2018) On the investment value of sell‑side analyst recommendation revisions in the UK. Review of Quantitative Finance and Accounting . ISSN 0924-865X

Full content URL: https://doi.org/10.1007/s11156-018-0749-y

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Abstract

This study conducts a comprehensive investigation into the investment value of sell-side analyst recommendation revisions in the UK, using a unique dataset from 1995 to 2013. Our rolling window analysis shows that, on average, upgrades fail to generate any sig-nificantly positive abnormal returns in any period of time, even before transaction costs. In addition, although downgrades could generate significantly negative abnormal gross returns over some periods of time, these observed significant returns disappear after accounting for transaction costs. Overall, our bootstrapping simulations confirm sell-side analysts’ lack of skill in making valuable up/downward revisions to cover the size of trans-action costs, irrespective of whether these revisions are made by high-ranking brokerage houses or not. However, an industry-based analysis shows that, within two high-tech indus-try sectors, i.e., Health Care and Technology sectors, sell-side analysts possess certain skill in making valuable downgrades over some periods of time and, in particular, such skill is sufficient to offset transaction costs.

Additional Information:The Open Access version of this article is available from the journals website https://rdcu.be/4ix3
Keywords:Analyst recommendation revisions, Transaction costs, High-ranking brokerage houses, Industry, Bootstrapping simulations
Subjects:L Social studies > L140 Econometrics
N Business and Administrative studies > N300 Finance
N Business and Administrative studies > N321 Investment
L Social studies > L111 Financial Economics
N Business and Administrative studies > N310 Banking
Divisions:Lincoln International Business School
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ID Code:32911
Deposited On:13 Aug 2018 07:50

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