Analyst recommendations

Analysts of most investment banks rate stocks and give name target price depending on their analysis. This analysis tests 486 stocks of the S&P500 on whether we can outperform a simple buy and hold strategy in only taking long positions in the stocks where the analyst's average target price is above the current market price. When the target price is below the current stock price we take a short position. The data sample takes daily stock values from March 2003 to October 2008.

The histogram shows how much the analyst strategy outperforms the buy and hold strategy per annum.

The average outperformance of the examined stocks amounts to: 2.3% per year. However, the Wilxocon Sum Rank test shows that the outperformance is not statistically significant. We can conclude that it is not possible to outperform the market with analyst recommendations.

mean=2.3%
median=0.2%
Std dev=22%

p =0.3281
test = 0 (not statistically significantly different to 0)