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Analysts’ stock recommendations, earnings growth and risk

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Listed:
  • Kenneth Peasnell
  • Yuan Yin
  • Martien Lubberink

Abstract

A key output of sell‐side analysts is their recommendations to investors as to whether they should, buy, hold or sell a company's shares. However, relatively little is known regarding the determinants of those recommendations. This study considers this question, presenting results that suggest that recommendations are dependent on analysts’ short‐term and long‐term earnings growth forecasts, as well as on proxies for the analysts’ unobservable views on earnings growth in the more distant future and risk. Furthermore, analysts who appear to incorporate earnings growth beyond the long‐term growth forecast horizons and risk into their recommendation decisions make more profitable stock recommendations.

Suggested Citation

  • Kenneth Peasnell & Yuan Yin & Martien Lubberink, 2018. "Analysts’ stock recommendations, earnings growth and risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 217-254, March.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:1:p:217-254
    DOI: 10.1111/acfi.12202
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    References listed on IDEAS

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    5. Philip L. Baird, 2020. "Do investors recognize biases in securities analysts’ forecasts?," Review of Financial Economics, John Wiley & Sons, vol. 38(4), pages 623-634, October.

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