A Study of Investment Performance and Impact of Stock Analysts’ Recommendations
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Abstract
Information available in the market is an important source for making investment decisions in the stock market. The objective of this study is to examine the value of analysts’ services for investors and to explore the presence of announcement effects of their recommendations on stock market return behavior. The study considers 222 buy recommendations and covers the period from July 4, 2005, to December 31, 2007.
The Sharpe Performance Measure is used to assess the impact of analysts’ recommendations on investment performance. The findings reveal the absence of any significant association between abnormal returns and the recommendations provided by equity analysts. However, the results related to holding periods offer some interesting insights. A one-week holding period following the recommendations results in inferior investment performance, whereas a one-year holding period yields the highest inferior investment performance.
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