The Predictive Power of Analysts and Their Impact on Prices

In this note, we study of the impact of sell side analyst recommendations and their revisions on prices. We show that the speed at which their information is incorporated into prices has increased in the last decades. This makes systematic strategies taking advantage of recommendation barely profitable after costs in recent years. Our main contribution is the introduction of a Bayesian model of the distribution of the Strength of analysts. Using this model, we manage to find both analysts who have impact on prices and analysts which are underestimated by the market in the sense that the short term price reaction to the recommendation is followed by a longer term drift