Do Analysts Know It Better? Sell-Side Analyst Recommendations and Stock Returns in Finland

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School of Business | Bachelor's thesis
Date
2016
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
30
Series
Abstract
In this thesis I analyze the association of sell-side analysts’ stock recommendations and stock returns in Finland between January 2006 and December 2015 on a daily basis. The focus is on profitability of an investment strategy utilizing these recommendations. I find that an investment strategy that buys the most favorable stocks and sells short the least favorable stocks on a daily basis yields an annual abnormal return of above 14 percent. Furthermore, I find that the abnormal returns are mostly pronounced on both small stocks and stocks that have small number of analysts covering the firm. In addition, I find that less-frequent portfolio rebalancing fades away the significance of abnormal returns, and that the abnormal returns turn into negative when the portfolio is rebalanced only on a monthly basis.
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Thesis advisor
Lof, Matthijs
Keywords
security analyst, analyst recommendations, stock markets, efficient market hypothesis, anomaly
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