Do Sell-side Analyst Reports Have Investment Value?

This paper documents new investment value in analyst reports. Analyst narratives embedded with large language models strongly forecast future stock returns, generating significant alpha beyond established analyst-based and fundamental-based factors. The return predictability arises primarily from reports that convey negative sentiment but forecast favorable long-term prospects, suggesting systematic market overreaction to near-term negative news. The effect is more pronounced for large, mature firms and for reports authored by skilled, experienced analysts. A Shapley value decomposition reveals that analysts' strategic outlook contributes the most to portfolio performance, especially forward-looking discussions on fundamentals. Beyond demonstrating untapped value in qualitative information, this paper illustrates the broader potential of artificial intelligence to augment, rather than replace, expert human judgment in financial markets.