The Accuracy of Analysts’ Recommendations on Malaysian Stock Prices

15 Pages Posted: 5 Jan 2018

See all articles by Saw-Imm Song

Saw-Imm Song

Universiti Teknologi MARA (UiTM)

Ei Yet Chu

Universiti Sains Malaysia

Date Written: December 1, 2017

Abstract

This study examines the price performance of Malaysian stocks recommended by the analysts of major stockbroking firms in Malaysia. Two questions are raised: whether investors can profit from the Malaysian stock market by following those analyst recommendations and whether buying (or selling) those recommended stocks could yield a higher return than the market during the same period of time. We conduct this research based on the information released by the major stockbroking firms, which were obtained from the popular blogs or websites providing information regarding market performance and target share prices in Malaysia. The samples period is in 2016, and a total of 139 recommendations issued by 9 professional Malaysian brokerage houses were identified. The performances of the recommended stocks were compared to the market returns based on one week (5 Days), three months, and six months after the trading recommendations were released.

It is found that stocks covered by analysts, in general, outperformed the market as those stocks would usually draw the attention of the investors. The majority of the recommendations are favorable either in Buy or Hold categories. If investors follow the analysts’ recommendations to buy and sell, shareholders are likely to profit in the mid- to long-run and as compared to the benchmark index. However, the study does not find the evidence that the longer the duration, the price will converge more to the target prices. This study provides a novel attempt to assess to a certain extent, the institutional efficiency and the characteristics of the share market from the perspective of an emerging market.

Keywords: Analysts' recommendations, target prices, accuracy of analysts' forecast, Malaysia, stock prices

JEL Classification: G02

Suggested Citation

Song, Saw-Imm and Chu, Ei Yet, The Accuracy of Analysts’ Recommendations on Malaysian Stock Prices (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3095364 or http://dx.doi.org/10.2139/ssrn.3095364

Saw-Imm Song

Universiti Teknologi MARA (UiTM) ( email )

Kuala Lumpur
Malaysia
6082677636 (Phone)
6082677200 (Fax)

Ei Yet Chu (Contact Author)

Universiti Sains Malaysia ( email )

Graduate School of Business
Universiti Sains Malaysia
Minden, 94300
Malaysia
60165793705 (Phone)
6046532792 (Fax)

HOME PAGE: http://www.gsb.usm.my

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