Researchers have often studied the profitability of stock recommendations made by technical analysts and fundamental analysts. The profitability of such recommendations is measured by looking at the abnormal excess returns over some benchmark return. In this study we study the liquidity of analyst recommendations rather than their profitability. We are interested in the following questions: Assuming that an investor is willing to wait for as long as it takes to reach the targetted price recommended by the technical or fundamental analyst, how long would she have to wait? What factors would affect this time to fulfilment?
Using publicly available data on analyst recommendations, we track the prices of the corresponding stocks for a given period of time after the recommendation was made. The event of interest is whether the targetted price of selling (in case of a buy recommendation) or buying (in case of sell recommendation) was reached within a given window. We use survival analysis techniques, in particular, accelerated failure time models, to understand the effect of different factors on the time to fulfilment. We build different models for recommendations made by technical analysts (technical calls) and fundamental analysts (fundamental calls). Our results indicate that for technical calls, higher traded volumes in that stock as well as lower targetted returns reduced the time to fulfilment, while a preceding bull market increased the time to fulfilment. In the case of fundamental calls, lower targetted returns and a pre-recommendation bullish trend, as well as general market movement post-recommendation reduced fulfilment times. Given these results, we conclude that analyst recommendations do not directly result in strategies that have high liquidity. The factors that affect stock price movement are post recommendation market movement rather than analyst insights. This indicates that like other stock markets in the West, the Indian stock market is weakly efficient.
