Investment Value of Analyst Recommendations:Evidence from the Indian Stock Market

Stock market analysts, the research units of brokerage houses and journalists—provide investors with recommendations about buying and selling potential stocks that are considered to have investment value. Financial periodicals publish these recommendations frequently (at least twice a week), thus serving as an important source of information, especially for retail investors. In recent years, these recommendations have been gaining popularity in the Indian context. This paper examines investment value and market impact of more than 1000 analyst recommendations relating to Indian stock market. This study reveals that analysts are more biased Buy rather than Sell recommendations. These recommendations have towards investment value in a short-term horizon of three-months from the date of recommendation. It is clear that Buy recommendations appear to be more valuable than Sell recommendations. However, the predictive ability measured by the hit ratio of analysts is not more than 50%.