Stock Buy Recommendations and their Impact:Evidence from Indian Capital Markets

Recommending a stock corresponds to providing investors with information and insights into particular companies they follow with the intention of guiding them for taking relevant investment decisions. This paper aims to analyse the impact of stock 'buy' recommendation from reputed foreign brokerage houses on stocks' return, using event study methodology. The study focused on 100 firms listed on National Stock Exchange and Bombay Stock Exchange, which have been recommended till March 31, 2015. The sampled stocks were further categorized into large cap, mid cap, and small cap stocks. With reference to buy recommendation, the impact of event study on average abnormal return was found to be positive and significant in post event period for stocks over all market capitalization. In terms of cumulative average abnormal returns, impact of 'buy' recommendation was found to be negative but insignificant for large cap and mid cap stocks but positive and significant for small cap stocks. The results indicate market inefficiency of small cap stocks and are therefore an addition to Indian capital market literature.