Value of Analyst Recommendations: Evidence from the MENA Region

Purpose - – The purpose of this paper is to document performance of analysts’ recommendations in the Middle East and North Africa (MENA) region during the period between 1999 and 2010. Design/methodology/approach - – This paper uses post-announcement market-adjusted returns as a measure of performance and computes returns for different holding periods. Significant positive (negative) returns following buy (sell) recommendation will indicate value relevance of these recommendations. Findings - – The authors show that analysts’ buy recommendations have significant information in them, while their sell recommendations contain no significant information. Significant positive returns are reported following analysts’ buy recommendations and insignificant returns following their sell recommendations. Furthermore, it is also shown that these results hold true only in markets where institutions are relatively strong (common law countries and countries with stronger property rights) and for firms which have lower agency conflicts (firms that pay dividends and have concentrated ownership). For markets where institutions are relatively weak and for firms which have greater agency conflicts, these results show no value in analysts’ recommendations. Practical implications - – These results imply that investors should not blindly follow analyst recommendations while making their investment decisions in the MENA region. Originality/value - – This paper makes detailed analysis of analyst recommendations in previously unexplored MENA region. Some conditions under which analyst recommendation have no value and some conditions under which they have partial value have also been identified.