The value of I/B/E/S recommendation : evidence in South-East Asian countries

Abstract

This study investigates the ‘value’ of analysts’ recommendation and performance in predicting stock returns by using I/B/E/S database. For accessing recommendation providing by analysts from brokerage firms, investor will pay for recommendation as ‘insider’ information. Moreover, for eliminating or reducing bias caused by individual analyst, investor should purchase more recommendation to calculate mean consensus lead to high cost of investment. I/B/E/S database provide mean consensus from analysts’ recommendation by calculating mean recommendation collected from each brokerage firms. The advantage from use I/B/E/S database is reducing bias of single recommendation and saving investment cost. This study also provides information about investing in different size of analyst covered firms and abnormal trading volume in each categories of recommendation. The study use the method from Cahart (1997) to test hypothesis with emerging market such as Thailand, Malaysia, Singapore, and Philippines and developed market represented by United States. The data used in this study ranged from January 1995 through December 2005 which composes of stock returns and recommendations. The result provides evidence that analysts’ recommendation has a value to investors. Moreover, analysts have skill to predict stock returns especially in ‘strong buy’ recommendations. Low covered firms generate more returns than high covered firms. Furthermore, the paper observes high trading volume in ‘relative buy’ and ‘relative sell’ recommendation more than ‘hold’ recommendation