Sell-side Analysts' Disagreement and Stock Prices

Abstract

In this paper we test the hypothesis that sell recommendations are costlier than buy recommendations by carrying out cointegration analyses. We find that that analyst recommendations that plainly urge the investor to take action (buy, sell) are consistent with their estimated losses (gains). Importantly, we find that analysts react mildly to higher projected losses, and strongly to higher projected capital gains. Also, we find that higher projected losses are positively related to dispersion in analysts' recommendations. In summary, we find empirical evidence in favor of Womack's (1996) hypothesis that the cost of issuing a sell recommendation is greater than the cost of a buy recommendation.