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The Value of Client Access to Analyst Recommendations

Published online by Cambridge University Press:  06 April 2009

T. Clifton Green
T. Clifton Green
Affiliation:
clifton_green@bus.emory.edu, Goizueta Business School, Emory University, 1300 Clifton Rd., Atlanta, GA 30322.
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Abstract

Early access to stock recommendations provides brokerage firm clients with incremental investment value. After controlling for transaction costs, purchasing (selling) quickly following upgrades (downgrades) results in average two-day returns of 1.02% (1.50%). Short-term profit opportunities persist for two hours following the pre-market release of new recommendations. The results are robust within sub-periods and a calendar-based strategy produces positive abnormal daily returns of over 10 basis points, or roughly 30% annualized. Recommending firms' market makers shift their quotes accordingly, providing indirect evidence that clients make use of the informational advantage that arises from analysts' opinion changes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 1 , March 2006 , pp. 1 - 24
Copyright
Copyright © School of Business Administration, University of Washington 2006

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