Can retail investors gain on analyst stock recommendations, Journalists Vs Brokerage Houses: Evidence from an emerging market?
Description
This paper provides empirical evidence on the investment value of two distinct types of analyst recommendations that are readily available to retail investors in India through leading business newspapers. The first type comprises recommendations generated by desk research journalists, while the second consists of republished (“second-hand”) recommendations originating from brokerage houses. The findings indicate that journalist-generated recommendations yield statistically significant abnormal returns of approximately 0.41 percent, whereas republished brokerage recommendations do not generate any abnormal returns in the post-recommendation period. Although sell recommendations constitute only 22 percent of the total recommendations provided by journalists, their investment value exceeds that of buy recommendations, suggesting that retail investors can effectively limit losses by following such advice. The study also examines subscription-based (paid) recommendations offered by brokerage houses and finds that these generate higher abnormal returns compared to freely available recommendations in business dailies. Additionally, the analysis reveals that journalist recommendations are biased toward low-value and low-volatility stocks. This study makes two key contributions. First, it provides early empirical evidence on the investment value of analyst recommendations in the Indian context. Second, it distinguishes between the performance of freely available recommendations and paid, subscription-based information, highlighting important differences in their value to investors. The findings are also broadly consistent with the Price Pressure Hypothesis and the Information Hypothesis in the context of Indian financial markets.
Copyright Date
January 2015
Publication Date
1-1-2015
Keywords
Analyst recommendations, Abnormal returns, Investment value, Emerging markets, Indian stock market
Conference
23rd Conference on theories and Practices of Securities and Financial Markets (SFM 2015), 11-12 December, 2015, Kaohsiung, Taiwan
