Analyst Recommendations and Anomalies Across the Globe

Abstract

We examine the value of analyst recommendations across 45 countries and 3.8 million firm-month observations from 1994 to 2019. Recommendation-based portfolio strategies lead to highly significant (insignificant) abnormal returns in international markets (in the U.S.). In line with limits-to-arbitrage-based explanations of market mispricing, we find higher abnormal recommendation-based strategy returns in countries with less developed financial markets. Consistent with analyst overconfidence bias, we also find that recommendations are less profitable and less aligned with composite mispricing scores for stocks in individualistic countries. Collectively, our evidence suggests that analyst recommendations provide more value to investors than previously thought.