By: Larry MacDonald

Studies of brokerage firms’ stock recommendations have focused on U.S. analysts; now there is one focusing on Canadian analysts. Published in the Spring, 2008 issue of Canadian Investment Review and authored by four professors from St. Francis Xavier University in Nova Scotia, it covers the period from 1996 to 2004.

Their findings roughly parallel those of the 1998 and the 2003 U.S. studies of Barber and associates. The authors conclude Canadian analysts’ recommendations “do have value.” The stronger the consensus buy recommendation, the more likely stock performance is to surpass the market return.

But the results are sensitive to market cycles. “The positive abnormal return for the most highly recommended firms is, however, limited to two time periods, namely the 1996-1998 (i.e. pre-crash) and 2002-2004 (i.e. post-crash) market periods. Return results for the 1999-2001 period (i.e. market bubble and crash) are less robust…”

Note to readers: Apologies for the lack of posts for the past three days. The computer servers were down.