Abstract
We examine the effect of security analyst recommendations on stock price momentum. Results show that momentum profits are directly linked to analyst optimism. Specifically, we find that a 1-unit change in recommendation quintile translates to about a 50 basis point change in subsequent 3-month momentum profits. We also examine uncovered stocks by using parallel projection methods to project analyst recommendations from covered stocks onto uncovered stocks. For uncovered stocks, projected recommendations are unrelated to subsequent momentum profits. Our findings show that investor optimism alone does not generate stock price momentum. Analyst affirmation is a key catalyst for stock price momentum.
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