Overview

Analysts are hired by banks in order to provide information to their clients and to the markets as a whole. The analysts analyze companies and provide recommendations, typically in the form of buy, hold or sell calls.

Anomalies

• Analyst Following Strategy - some evidence exists that portfolios that invest in the highest rated stocks according to a pool of analysts outperforms a portfolio that invests in the lowest rated stocks. In addition, there is evidence that the effect is more pronounce for markets, like small cap stocks, that are less efficient. (see zacks)
• Earnings Forecast Revisions - Analysts typically do not like to revise their forecasts unless they receive strong information that their forecast is incorrect. There is evidence that trading in the direction of the revision can lead to outsized returns, espeically for large revisions. (see zacks)