« Highest Yielding Stocks in the Russell 1,000 | Main | Today's Key ETF Performance: 7/19/07 »


John Hall

I think this is a fascinating post.

I think there is a well known phrase, "Sell in May and Go Away." If you were to average out the returns over many many years, you produce a superior risk-adjusted return by Buying in November and Selling in May.

I don't know if this works for the past few years, but my reason that the analyst may have the buying/selling reversed is that they are reacting to the previous returns of the market. The markets would typically be up from November and the market looks strong by May comes along so they change their recommendations. The statistics may not support the past couple of years it being this strong.

The other possibility I can think of is if this "Sell in May and Go Away" actually is something that is feared by the investing community and they react to it by issuing more positive recommendations to keep the commissions up and keep people buying.

Finally, analysts have an institutional incentive to issue more ratings changes than if they were operating on a straight salary. More ratings changes means more revenues for the firm. Also, in the past it could have been that there were more stocks simply put on hold or not downgraded due to the relationship with IBankers. Since Spitzer changed that relationship, it could have resulted in more excessive needless ratings changes so that analysts can prove their independence.

Justin Walters

All interesting points, especially the second theory. We're doing a lot of things with the database we have, and we plan on looking into analyst actions and stock price reactions much more. Thanks for the comments.

balaram ghosal

Great post.
I see it little differently.
It looks like analysts give more positive recom. when market is down and vise versa. This way they have a better chance of being right. After all, analysts want to be right.

The comments to this entry are closed.


Our View

Bespoke Premium

In The News

Premium Site

  • Morning Lineup
  • Short Interest
  • Upgrades/Downgrades
  • Sector Snapshot
  • Daily ETF Trends
  • Weekly Review
  • Economic Indicators
  • Trade of the Day
  • Bespoke Stock Scores
  • Daily Market Model
  • Daily Strategy
  • Daily Stock Odds
  • Market Studies