Analyst recommendations across sectors: Analyzing the performance of analyst coverage of stocks publicly traded on the Stockholm Stock Exchange

Abstract: In this thesis we evaluate whether analysts covering stocks on the Stockholm Stock Exchange are able to consistently add investment value through their stock picking ability. The method employed to evaluate performance is to construct weekly rebalanced portfolios based on consensus recommendations for each covered company. These are then separated into sector specific portfolios which are adjusted with appropriate benchmarks to examine if any statistically significant market adjusted returns exist. To make results more realistic we also adjust for potential transaction costs. Finally we investigate the existence of any profitable trading strategies. Based on our empirical results we find that stock analysts are in fact able to add value through stock recommendations. Furthermore, we find that analysts seem to prevail in the Consumer Services, Basic Materials, Technology and Health Care sectors. When also analyzing market adjusted returns series net of transaction costs we conclude that analysts seem not to be able to generate any significant positive returns.