The drivers and profitability of sell-side analysts’ recommendation revisions’ tails

Abstract

Faias (2017) develops a prediction exercise of influential recommendation revisions to construct a long-short strategy that earns significant alphas between 1999 and 2013. This work extends the results of that strategy until 2021 and adds new variables to the model, inspired by Loh and Stulz (2011) and Loh and Stulz (2018). I show that the equal-weighted long-short strategy exhibits abnormal returns, with a monthly return of 1.9% and a break-even round-trip transaction cost of 88.6 basis points, between 1999 and 2021. These results survive an extensive battery of robustness tests. Therefore, analyst recommendation revisions represent a valuable information vehicle for investors.

Date of Award	10 May 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Faias (Supervisor)