Working Paper: NBER ID: w26062
Authors: Justin Birru; Sinan Gokkaya; Xi Liu; Ren M. Stulz
Abstract: Using a novel database, we show that the stock-price impact of analyst trade ideas is at least as large as the impact of stock recommendation, target price, and earnings forecast changes, and that investors following trade ideas can earn significant abnormal returns. Trade ideas triggered by forthcoming firm catalyst events are more informative than ideas exploiting temporary mispricing. Institutional investors trade in the direction of trade ideas and commission-paying institutional clients do so earlier than non-clients. Analysts generating trade ideas are more established and are more likely to produce ideas for stocks with high dollar trading commissions in their coverage universe.
Keywords: analyst trade ideas; stock price impact; institutional trading; abnormal returns; analyst recommendations
JEL Codes: G11; G12; G14; G20; G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| analyst trade ideas (F17) | stock price impact (G19) |
| analyst trade ideas (F17) | institutional investors trading behavior (G41) |
| analyst trade ideas (F17) | abnormal returns (G14) |
| firm catalyst events (G14) | trade ideas price impact (F69) |
| changes in stock recommendations (G24) | stock price impact (G19) |
| target prices (D41) | stock price impact (G19) |
| earnings forecasts (G17) | stock price impact (G19) |