Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-15T09:00:20.907Z Has data issue: false hasContentIssue false
  • English
  • Français

Analysts, Industries, and Price Momentum

Published online by Cambridge University Press:  06 April 2009

Leslie Boni  and
Kent L. Womack
Leslie Boni
Affiliation:
boni@unm.edu, University of New Mexico, Anderson Schools of Management, 1924 Las Lomas NE, Alburquerque, NM 87131
Kent L. Womack
Affiliation:
kent.womack@dartmouth.edu, Dartmouth College, Tuck School of Business at Dartmouth, Hanover, NH 03755.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the value of analysts as industry specialists. We show analysts create value in their recommendations mainly through their ability to rank stocks within industries. An industry-based recommendation strategy substantially improves the return to risk ratio and reduces price momentum tilt relative to portfolios that ignore industry information. An examination of the links among analyst information, aggregated at the industry level, and industry returns and industry momentum shows that industry returns precede industry-aggregated analyst upgrades and downgrades, and the short-term industry price momentum phenomenon is partly explained by returns of firms with more analyst coverage leading those with less in that industry. Recommendation information is not valuable for predicting future relative industry returns, however.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 1 , March 2006 , pp. 85 - 109
Copyright
Copyright © School of Business Administration, University of Washington 2006

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barber, B.; Lehavy, R.; McNichols, M.; and Trueman, B.. “Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns.” Journal of Finance, 56 (2001), 531–563.CrossRefGoogle Scholar
Bhojraj, S.; Lee, C. M. C.; and Oler, D. K.. “What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research.” Journal of Accounting Research, 41 (2003), 745–774.Google Scholar
Chan, L. K. C.; Jegadeesh, N.; and Lakonishok, J.. “Momentum Strategies.” Journal of Finance, 51 (1996), 1681–1713.CrossRefGoogle Scholar
Conrad, J.; Cornell, B.; Landsman, W. R.; and Rountree, B. R.. “How Do Analyst Recommendations Respond to Major News?” Journal of Financial and Quantitative Analysis, 41 (2006), 25–49.Google Scholar
D'Avolio, G. “The Market for Borrowing Stock.” Journal of Financial Economics, 66 (2002), 271–306.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 3–56.Google Scholar
Fama, E. F., and French, K. R.. “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153–193.Google Scholar
Green, T. C. “The Value of Client Access to Analyst Recommendations.” Journal of Financial and Quantitative Analysis, 41 (2006), 1–24.CrossRefGoogle Scholar
Hong, H.; Lim, T.; and Stein, J. C.. “Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies.” Journal of Finance, 55 (2000), 265–295.CrossRefGoogle Scholar
Hong, H., and Stein, J. C.. “A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets.” Journal of Finance, 54 (1999), 2143–2184.CrossRefGoogle Scholar
Hou, K. “Industry Information and the Lead-Lag Effect in Stock Returns.” Working Paper, Ohio State Univ. (2004).Google Scholar
Ivkovic, Z., and Jegadeesh, N.. “The Timing and the Value of Forecast and Recommendation Revisions.” Journal of Financial Economics, 73 (2004), 433–463.CrossRefGoogle Scholar
Jegadeesh, N.; Kim, J.; Krische, S. D.; and Lee, C. M. C.. “Analyzing the Analysts: When Do Recommendations Add Value?“ Journal of Finance, 59 (2004), 1083–1124.CrossRefGoogle Scholar
Jegadeesh, N., and Kim, W.. “Value of Analyst Recommendations: International Evidence.” Working Paper, Emory Univ. (2004).Google Scholar
Jegadeesh, N., and Titman, S.. “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” Journal of Finance, 48 (1993), 65–91.Google Scholar
King, B. F. “Market and Industry Factors in Stock Price Behavior.” Journal of Business, 39 (1966), 139–190.Google Scholar
Moskowitz, T. J., and Grinblatt, M.. “Do Industries Explain Momentum?“ Journal of Finance, 54 (1999), 1249–1290.CrossRefGoogle Scholar
Stickel, S. E. “The Anatomy of the Performance of Buy and Sell Recommendations.” Financial Analysts Journal, 51 (1995), 25–39.CrossRefGoogle Scholar
Womack, K. L. “Do Brokerage Analysts' Recommendations Have Investment Value?“ Journal of Finance, 51 (1996), 137–167.CrossRefGoogle Scholar