The Seasonality in Sell-Side Analysts’ Recommendations

In this paper, we examine whether highly reputed sell-side analysts (Stars) account for seasonality in their forecasts. Extensive research has documented that seasonality exists in the stock market, and in their quest to become Stars, analysts may consider seasonality when they issue recommendations. We find that both Star and Non-Star analysts are highly optimistic in May, which contradicts the adage “Sell in May and go away”. Furthermore, our results also show that Non-Stars issue more optimistic target prices than Stars. Detailed analyses reveal that optimism cycles are related to the calendar of companies' earnings announcements rather than to market-specific effects. We show this by measuring the differences in seasonality patterns in expected returns on target prices by Star and Non-Star sell-side analysts. Analysts do not consider three well-known seasonal effects that we investigate when they issue recommendations