Can Analysts Predict Rallies Better Than Crashes?

Medovikov, Ivan (2014): Can Analysts Predict Rallies Better Than Crashes?

Abstract

We use the copula approach to study the structure of dependence between sell-side analysts' consensus recommendations and subsequent security returns, with a focus on asymmetric tail dependence. We match monthly vintages of I/B/E/S recommendations for the period January to December 2011 with excess security returns during six months following recommendation issue. Using a symmetrized Joe-Clayton Copula (SJC) model we find evidence to suggest that analysts can identify stocks that will substantially outperform, but not underperform relative to the market, and that their predictive ability is conditional on recommendation changes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Analyst recommendations, copulas, non-linear dependence
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

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