BUY RECOMMENDATIONS AND ABNORMAL RETURNS ON THE STOCKHOLM STOCK EXCHANGE IN 2012-2014

Abstract: This paper documents that a portfolio consisting of buy recommended stocks from SEB, Nordea and Carnegie Investment Bank, with daily rebalancing and no longer than one month time horizon, yields an annual abnormal return significantly different from zero. Less frequent rebalancing causes the abnormal return to disappear in the shorter term, but to become significant and reduced on a longer time horizon. These results provide evidence of the presence of abnormal returns on the Stockholm Stock Exchange due to buy recommendations. The intention of the study is to provide investors with a foundation upon which they can build profitable investment strategies. However, the adversities for such purpose are the higher transaction costs that follow the high rebalancing that was needed to obtain significant abnormal returns. The outcome of this study suggests that the market is efficient when transaction costs are considered.