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: how can the predictive value of security analyst recommendations best be employed as part of an investment strategy?

  • Maria Mafalda de Barros Inácio de Almeida e Brito (Student)

Student thesis: Master's Thesis


This study investigates how to explore abnormal returns from an investment strategy that moves according to publicly available analyst recommendations relative to US companies. The portfolio that buys all the upgrades to Strong Buy and Buy and short sells all the downgrades to Strong Sell and Sell presents annualized abnormal returns of 65%, in the period from 1993 to 2019, compared against the five-factor model of Fama and French with momentum and short term reversal. When calculating the transaction fee that leads to breakeven, the decade from 2010 to 2019 no longer holds significant abnormal returns if incurred in a one-way transaction fee higher than 0,04% of the trading value. This low breakeven fee compromises the profitability of the above investment strategy in current days. It is evidenced in this study that abnormal returns have a peak on the day when the recommendation is announced and that the day before also presents high abnormal returns. Strategies that constraints the stock selection on the level and change of the analyst recommendations bring slightly bigger abnormal returns. Results are higher for smaller firms and robust after testing for the firm’s liquidity and for different time periods.
Date of Award15 Oct 2020
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorBurcin Yurtoglu (Supervisor) & José Faias (Supervisor)


  • Analyst
  • Recommendation
  • Abnormal
  • Returns
  • Investment
  • Strategy


  • Mestrado em Finanças

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