The Anatomy of the Performance of Buy and Sell Recommendations

Brokerage house buy and sell recommendations influence stock prices. Short-term price reaction is a function of the strength of the recommendation, the magnitude of the change in recommendation, the reputation of the analyst, the size of the brokerage house, the size of the recommended firm, and contemporaneous earnings forecast revisions. The strength of the recommendation, firm size, and contemporaneous earnings forecast revisions are associated with price changes that appear to be permanent, information effects. The magnitude of the change in recommendation, analyst reputation, and broker size appear to have temporary, price pressure effects.