On the Information Role of Stock Recommendations

We examine the information role of stock recommendation changes, which are among the security analyst’s most important outputs. Our robust findings show changes are associated with economically insignificant mean price reactions. They are quite inclined to follow recent news that appears to be allied with announcements of earnings related and other corporate events. Further results show the changes tend to be poor stock picks for future returns, and the picks agree more often with past returns. The evidence is generally consistent with the view that analyst recommendations are uninformative, and tend to piggyback on the news. The findings overturn the long-standing view that analyst recommendation changes play a central information role in security markets.