The investment value of the frequency of analyst recommendation changes for the ordinary investor

We find that analysts who frequently revise their stock recommendations outperform those who do not. This result holds for portfolios formed on the basis of favorable changes in recommendations as well as unfavorable changes. The frequency of revision captures information incremental to factors known to identify superior recommendations. Although much of the frequently revising analysts' advantage follows events proxied by abnormally high returns or trading volume, it does not appear to derive from more public events such as earnings announcements. Further, these analysts outperform their counterparts even over the short-run, suggesting that this is not simply a “quantity over quality” phenomenon. In summary, our results imply that the superior profitability of frequently revising analysts emanates at least partly from their ability to generate private information using their superior skill. Overall, the ordinary investor is better off following the advice of analysts who revise their recommendations more frequently.

► Analysts who frequently revise stock recommendations outperform those who do not.
► Revision frequency is robust to factors known to predict recommendation quality.
► “Frequent analysts” benefit from market activity, not from earnings announcements.
► “Frequent analysts” outperform even on a per-recommendation basis.