The Profitability of Analysts’ Stock Recommendations: What Role Does Investor Sentiment Play?*

40 Pages Posted: 9 Jul 2009 Last revised: 12 May 2014

See all articles by Mark Bagnoli

Mark Bagnoli

Purdue University

Michael B. Clement

University of Texas at Austin - Department of Accounting

Michael J. Crawley

University of Arkansas

Susan G. Watts

Purdue University

Date Written: July 3, 2009

Abstract

This study investigates whether analysts who pay attention to investor sentiment issue more or less profitable stock recommendations than their peers. We find that analysts whose stock recommendations are positively correlated with recent or future investor sentiment tend to issue relatively less profitable recommendations. Our results suggest that analysts attempting to maximize the profitability of their stock recommendations may wish to focus on fundamentals such as earnings, cash flows, and discount rates rather than attempting to predict investor sentiment or other signals that may affect a firm’s stock price but that are not theoretically related to the firm’s underlying intrinsic value.

Keywords: investor sentiment, financial analysts, stock recommendations

JEL Classification: M41

Suggested Citation

Bagnoli, Mark E. and Clement, Michael B. and Crawley, Michael Joseph and Watts, Susan G., The Profitability of Analysts’ Stock Recommendations: What Role Does Investor Sentiment Play?* (July 3, 2009). Available at SSRN: https://ssrn.com/abstract=1430617 or http://dx.doi.org/10.2139/ssrn.1430617

Mark E. Bagnoli

Purdue University ( email )

Department of Accounting
West Lafayette, IN 47907-1310
United States
765-494-4484 (Phone)
765-496-1778 (Fax)

Michael B. Clement (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

2110 Speedway, Stop B6400
Austin, TX 78712
United States
512-471-0332 (Phone)
512-471-3904 (Fax)

Michael Joseph Crawley

University of Arkansas ( email )

Sam M. Walton College of Business
Room 454
Fayetteville, AR 72701
United States
(479) 575-6132 (Phone)

Susan G. Watts

Purdue University ( email )

Department of Accounting
West Lafayette, IN 47907-1310
United States
765-494-4504 (Phone)
765-496-1778 (Fax)

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