Projected earnings accuracy and the profitability of stock recommendations

Arbeitspapier

Analysts providing more accurate earnings forecasts also issue more profitable recommendations. We demonstrate how investors can profit from this contemporaneous link by differentiating between able and lucky analysts. In line with previous studies, we find that past track records alone are not sufficient to identify profitable recommendations. Only skilled analysts working in a superior environment provide consistently profitable recommendations. The overall profitability of their recommendations is not driven by a post-announcement drift effect. We find that an implementable, i.e. look-ahead bias free, trading strategy based on the projected - rather than past - earnings accuracy yields substantial excess returns.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 10-17 [rev.]

Classification and Topics

• Classification: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; Financial Forecasting and Simulation ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
• Subject: analysts ; portfolio management ; profitability of recommendations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hess, Dieter ; Kreutzmann, Daniel ; Pucker, Oliver
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/70119
• Last update: 10.03.2025, 11:43 AM CET