Are Analyst Short-Term Trade Ideas Valuable?

66 Pages Posted: 8 Jul 2019 Last revised: 30 Jun 2021

See all articles by Justin Birru

Justin Birru

Ohio State University (OSU) - Department of Finance

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2021

Abstract

Short-term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find trade ideas have a stock-price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm’s management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short-term stock picking skills.

Keywords: analyst research, trade ideas, mutual funds, institutional investors, broker commissions, soft-dollar payments, stock mispricing, stock recommendations

JEL Classification: G11, G12, G14, G20, G23, G24

Suggested Citation

Birru, Justin and Gokkaya, Sinan and Liu, Xi and Stulz, Rene M., Are Analyst Short-Term Trade Ideas Valuable? (June 29, 2021). Fisher College of Business Working Paper No. 2019-03-015, Charles A. Dice Center Working Paper No. 2019-15, Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3413940 or http://dx.doi.org/10.2139/ssrn.3413940

Justin Birru

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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