huntleys downgrade, page-11

victorp

Stock prices to recommendation revision (Buy, Hold, and Sell) have the implications for the profitability of analysts’ recommendations.

Brokers frequently comment on and sometimes recommend companies that their firms have recently taken public. Stocks that are downgraded by analysts perform poorly and are bias because there is a potential conflict of interest. There is no evidence that investors can profit from a strategy of following the recommendations of the brokers. As such I won’t follow Huntley’s recommendation (I did it in the past with AIO or BOL with ’Buy’ reccomendation to generate loss) ).

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=968139
The issue is whether there is evidence that recommendation changes are used to facilitate execution of trades for important clients rather than as pointers to existing misevaluations in the stock market. Our results reveal that some recommendation changes seem more likely to have been generated by an attempt to execute a sizeable order rather than by genuine revision of expectations concerning the future profitability of the analysed firm.

Cheers