atans1

Moving share prices: analysts or new info?

In Uncategorized on 19/03/2010 at 5:25 am

This extract from FT’s Lex is a must read.

Research by hedge fund GLG, which tracked share price movements before and after broker announcements, does show a connection between recommendations and a stock’s subsequent performance.

It found that when an average stock burdened with a consensus “sell” recommendation is given a “buy” rating, the underperforming price turns round and, after 100 days, the stock can be expected to outperform the market by about 2 per cent. And when a large broker issues the recommendation, the effect is almost half as much again.

For example, K+S, the German chemical maker and previously a consensus “sell”, was upgraded to “buy” in January by Bank of America Merrill Lynch and its share price jumped 12 per cent. Of course, many other factors influence share prices, but on average this effect is repeated.

Proving causality, though, is difficult. Typically, a broker issues a recommendation immediately after the company announces news such as earnings figures or a landmark acquisition. It is almost impossible to determine how much of the subsequent share price movement is due to the broker’s advice and how much would have occurred anyway based on the news. “

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 186 other followers

%d bloggers like this: