Value of Analysts’ Consensus Recommendations and Investor Sentiment

Journal of Behavioral Finance, 2012, Forthcoming

Posted: 31 Jan 2012 Last revised: 3 Apr 2012

See all articles by Pilar Corredor

Pilar Corredor

Public University of Navarre

Elena Ferrer

Universidad Pública de Navarra

Rafael Santamaria

Public University of Navarre

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

Corredor, Pilar and Ferrer, Elena and Santamaria, Rafael, Value of Analysts’ Consensus Recommendations and Investor Sentiment (November 30, 2011). Journal of Behavioral Finance, 2012, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1995546

Pilar Corredor

Public University of Navarre ( email )

Elena Ferrer

Universidad Pública de Navarra ( email )

Campus Arrosadía
Pamplona, Navarra 31006
Spain

Rafael Santamaria (Contact Author)

Public University of Navarre ( email )

Campus de Arrosadia s/n
Pamplona, Navarra 31008
Spain

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