Can retail investors gain on analyst stock recommendations, Journalists Vs Brokerage Houses: Evidence from an emerging market?

Abstract

This paper provides empirical evidence on investment value of two divergent sets of analyst recommendations available easily almost freely to retail investors of India; these are published in the two leading business dailies. The recommendations offered by desk research journalists are earning significantly 0.41% abnormal returns, while the re-used (second-hand) recommendations of brokerage houses are not at all providing any abnormal returns over the post recommendation period. Although the number of sell recommendations are just 22% of total recommendations offered by the journalists, the investment value of these recommendations are better than buy recommendations and retail investors can safely minimize their losses following the recommendation. We have also included in this paper subscribed recommendations (or costly information) of a brokerage house and found that these recommendations are offering higher abnormal returns than the low cost recommendations available through the business dailies. Our analysis also shows that journalist recommendations are biased to low value and low volatile stocks. This paper is unique in two aspects; first it provides first of its empirical evidence on investment value of analyst recommendations in the Indian context , two it discriminates the investment value of recommendations freely available from the subscribed (or paid) information to the investors. This paper also supports Price Pressure and Information Hypothesis in the Indian context