Does the value of recommendations depend on the level of optimism? A country-based analysis

This paper analyzes the value of analysts' consensus recommendations and their changes in eight developed stock markets using data from Factset/JCF, in the period from January 1994 to December 2006. Results show that analysts are optimistically biased, albeit to a different degree in each country; issuing a much higher number of buy than sell recommendations. Sell recommendations seem to be a stronger signal than buy recommendations and the latter are more valuable in countries with a low optimism bias. Consensus changes are a valuable tool for making investment decisions in every country, independently of the level of bias. Thus, the level of bias of each country matters in consensus levels but not in consensus changes. The value of analysts' outputs is ultimately an empirical question with meaningful implications for practitioners and academics, since they can focus on the relevant variables when making investment decisions or analyzing firms' future prospects.