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College of Business
June 21, 2002 -- News Brief
Research by Finance faculty member cited in SmartMoney column
The research of Narasimhan Jegadeesh, professor of finance and Harry A. Brandt Distinguished Chair in Finance, is referenced in Paul Strum's Stockscreen column in the June 2002 print issue of SmartMoney. (The Stockscreen column is also available online.) Strum's column -- subtitled "How I stopped worrying about conflicts and learned to love Wall Street research" -- focuses on how to translate the buy/sell consensus recommendations made by stock analysts covering a specifc company. These recommendations are now readily available on the web.
Jegadeesh recent research paper titled "Analyzing the Analysts: When do Recommendations Add Value?'' is co-authored with Joonghyuk Kim, Weatherhead School of Management at Case Western Reserve University, Susan Krische, lecturer in the CBA Department of Accountancy, and Charles Lee, Johnson School of Management at Cornell University. (Kim received a PhD in finance from CBA in 2001 and an MS in finance in 1996.) The work, called a massive number-crunching effort by Strum, reviewed nearly 55,000 recommendations made over a period of 13 years (1985-1998) to try to determine what companies analysts pick and why and when their selections add value.
The authors caution that not all stocks recommended by analysts make good investments. Follow analyst recommendations only when the recommended stocks also have strong fundamentals such as strong price momentum and earnings momentum, and high value scores (high earnings to price ratio and high book to market ratio). Avoid stocks recommended by analysts that are low on either the momentum scores or the value score.