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Can analysts predict rallies better than crashes?

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  • Medovikov, Ivan

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–December 2011 with excess security returns during six months following recommendation issue. Using a mixed Gaussian–symmetrized Joe–Clayton copula 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.

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  • Medovikov, Ivan, 2014. "Can analysts predict rallies better than crashes?," Finance Research Letters, Elsevier, vol. 11(4), pages 319-325.
    • Handle: RePEc:eee:finlet:v:11:y:2014:i:4:p:319-325
    DOI: 10.1016/j.frl.2014.08.001
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    Cited by:

    1. I. Medovikov S. & И. Медовиков С., 2019. "Могут ли фондовые аналитики предсказать рыночный риск? Новые сведения из теории копулы // Can Stock Analysts Predict Market Risk? New Evidence from Copula Theory," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 23(1), pages 38-48.
    2. Roger, Tristan, 2017. "Reporting errors in the I/B/E/S earnings forecast database: J. Doe vs. J. Doe," Finance Research Letters, Elsevier, vol. 20(C), pages 170-176.
    3. Taussig, Roi D., 2022. "Market prices, analysts' predictions, and Covid19," Finance Research Letters, Elsevier, vol. 46(PA).

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    More about this item

    Keywords

    Analyst recommendations; Copulas; Non-linear dependence;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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