Value of Analysts’ Consensus Recommendations and Investor Sentiment
Journal of Behavioral Finance, 2012, Forthcoming
Posted: 31 Jan 2012 Last revised: 3 Apr 2012
Date Written: November 30, 2011
Abstract
This paper studies the effect of investor sentiment on analysts' consensus recommendations. Our results show that the optimistic bias of analysts in the issuing of recommendations is affected by investor sentiment: the greater the investor sentiment, the more optimistically biased the analysts’ consensus recommendations. This bias is larger in stocks whose characteristics make them hard to value or to arbitrage. We also show that investor sentiment can help in the design of profitable strategies, particularly when taking the short position in portfolios with high sentiment sensitivity stocks.
Keywords: Investor sentiment, Analysts, Consensus recommendations
JEL Classification: G10, G14
Suggested Citation: Suggested Citation