| Summary: | 碩士 === 國立交通大學 === 財務金融研究所 === 101 === This paper estimates the abnormal returns, both gross and net of trading costs, earned on several investment strategies designed to take advantage of analysts’ stock recommendations. We document that a portfolio of the stocks with the most (least) favorable consensus analyst recommendations provides an average annual abnormal gross return of 11.23 (-7.54) percent, after controlling for market risk, size, book-to-market, and price momentum effects. Purchasing stocks that are most highly recommended by security analysts and selling short those that are least favorably recommended yields an abnormal gross return of 1.513 percent per month. Less frequent portfolio rebalancing or a delay in reacting to recommendation changes decreases these returns. After accounting for transactions costs, these active trading strategies also can generate abnormal returns. Results suggest that the recommendations of foreign analysts provide valuable investment information on the Taiwan stock markets.
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