Bold Recommendations that Lead the Market

My paper provides a new way to understand analysts’ bold recommendations by dividing them into two categories: (a) Contra-bold recommendations (bold without followers) and (b) leading-bold recommendations (bold with followers). A comparison of market performance indicates that (1) leading-bold recommendations create higher market returns than contra-bold or non-bold recommendations both in reaction to the immediate announcement and also in terms of longer period price behavior; and (2) bold recommendations create higher market returns than non-bold recommendations. Cross-sectional analyses provide further information about which factor make analysts more likely to be market leaders. These results confirm the findings in the first part which show that analysts’ private information channels or personal expertise will be highly valued by other analysts and the market as well.