Analysts’ abnormal returns and stock specific characteristics that consciously or unconsciously impact analysts’ recommendations: Evidence from Finland 1999-2014

Analysts have become more important over the past years because the amount of information on the stock market has increased. It has led analysts to become stock market specialists and their opinions are needed. The Capital Asset Pricing model and the efficient market hypothesis cannot explain abnormal returns generated by following analysts’ recommendations. Investors induce stock price reactions when analysts issue new recommendations or change existing ones, which have caused short-term and longterm abnormal returns. Several studies have suggested that abnormal returns follow analysts’ recommendations. When a new recommendation is issued, it immediately impacts the stock price. This thesis examines the phenomena through 2 distinct methods. Firstly There are three portfolios Buy, Hold and Sell constructed on the basis of analysts’ recommendations, which are then benchmarked with OMXH and OMXH24 market indices and a market model regression is applied to the results. The second part examines whether stocks with the same recommendation share some specific characteristics and therefore consciously or unconsciously impact on analysts’ recommendations. This study finds indication in the Finnish stock market that it is possible to outperform the market and generate significant abnormal returns by following favourable analysts’ recommendations. This study also continues the research in the area of identifying stock-specific characteristics, which consciously or unconsciously impact analysts’ recommendations. Stock characteristics of liquidity, price-to-book and size are documented to have a significant impact on the analysts’ recommendations in this study.fi=Opinnäytetyö kokotekstinä PDF-muodossa.|en=Thesis fulltext in PDF format.|sv=Lärdomsprov tillgängligt som fulltext i PDF-format