Abstract
There are several noteworthy findings here about the usefulness of analysts9 buy recommendations in investment decisions. First, recommendations add more value when they are consistent with other signals than when they are inconsistent. Second, other signals, such as earnings revisions and price momentum, add more value when they are consistent with recommendations than when they are inconsistent. Third, recommendations add more value in down markets than in up markets. Finally, recommendations add more value for small-cap stocks than for large-cap stocks. The implications of these results are that recommendation data are more useful 1) when they are corroborated by other signals; 2) when more judgment is needed to distinguish between “good” and “bad” stocks; and 3) for stocks that are less informationally efficient.
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