The Value of Client Access to Analyst Recommendations

The Value of Client Access to Analyst Recommendations
Author(s): Green, Clifton
Year: 2005
Paper Number: GBS-FIN-2005-007
Goizueta Department: Finance

Abstract

Early access to stock recommendations provides brokerage firm clients with incremental investment value. After controlling for transaction costs, purchasing (selling) quickly following upgrades (downgrades) results in average two-day returns of 1.02% (1.50%). Short-term profit opportunities persist for two hours following the pre-market release of new recommendations. The results are robust within sub-periods and a calendar-based strategy produces positive abnormal daily returns of over ten basis points, or roughly 30 percent annualized. Recommending firms' market makers shift their quotes accordingly, providing indirect evidence that clients make use of the informational advantage that arises from analysts' opinion changes.