Local predictive ability of analyst recommendations

Abstract

This article shows that locally aggregated analyst recommendations at the Metropolitan Statistical Area (MSA‐) or state‐level predict future locally aggregated excess returns. The results hold even after controlling for macroeconomic variables, industry and market returns, as well as investor sentiment. We also show that the local predictive ability of analyst recommendations is stronger for geographically concentrated firms. Additional analysis at the state‐level for the geographically concentrated firms reveals that locally aggregated analyst recommendations predict future local economic fundamentals. Overall, our findings suggest that analyst recommendations contain information at the MSA‐ and state‐level, and that local information content is richer for geographically concentrated firms.

Did Politicians Use Non-Public Macroeconomic Information in Their Stock Trades? Evidence from the STOCK Act of 2012

“…Revealing the effect of the STOCK Act helps us assess the source of predictive ability reported by Karadas et al (forthcoming). The possibility exists that similar to sell-side analysts (Howe et al 2009;Karadas and Papakroni 2019), politicians could possess superior skills to interpret the macroeconomic developments in the economy and to extract information from publicly available data. For example, a reported increase in the growth rate of gross domestic product (GDP) in a post-recession period is clearly good news, and ordinary investors are likely to react positively.…”