Time to payoff: Efficacy of analyst recommendations in the Indian stock market

Abstract

Abnormal excess returns are often used to measure the profitability of analyst recommendations. We study the liquidity of recommended strategies, by modelling the time to payoff. Using an event study methodology, we find that target prices are reached in about 43% of 392 technical calls and 52% of 211 fundamental calls. Accelerated failure time models show that for technical calls, high traded volumes and lower targetted returns led to earlier fulfilment, while a bullish market delayed fulfilment. For fundamental calls, lower targetted returns, a bullish market trend, and overall post-recommendation market movement accounted for earlier fulfilment, with sell recommendations performing slightly better.