Recommendation Value on an Emerging Market: the Impact of Analysts’ Recommendations on Stock Prices and Trading Volumes in Tunisia

Mardi | 2013-06-25

Sébastien GALANTI – Zahra BEN BRAHAM

Financial analysts issue “buy”, “sell” or “hold” recommendation about stocks. Recommendations have value if investors trade upon them, which should affect prices and trading volumes. We use the methodology of event study to analyze price and volume reaction to the recommendation release. With a database of 2359 recommendations about 55 companies on the Tunisian Stock Exchange (BVMT) from 2005 to 2009, we show that prices and volumes react significantly to recommendations level. However, we only provide a weak evidence of reaction to changes in recommendations. We explain this result by a special feature of this market place: the systematic release of monthly recommendations, in contrastto developed markets where new recommendations are issued only if new information is available. This can focus investors on the confirmation of the recommendation, rather than on their revisions. We also confirm a special feature of emerging stock markets, which is that volumes are abnormally low following a “sell” recommendation, whereas in that case they are abnormally high in more liquid markets.