Can Analysts Really Forecast? Evidence from the Karachi Stock Exchange

Abstract

This study examines the impact of analysts’ recommendations on stock prices listed on the Karachi Stock Exchange for the period 2006–12. The recommendations are extracted from the daily Morning Shout report published by Khadim Ali Shah Bukhari Securities Ltd (KASB), which provides buy and sell recommendations for different stocks. We use the market model to estimate the abnormal returns around the recommendation dates for these securities. The study also investigates whether the abnormal returns are due to price pressure or information content. We find that investors earn abnormal returns on the basis of analysts’ recommendations for these securities. The results are robust in considering only the sub-sample subsequent to 2008’s global financial crisis, and are also consistent with the information content hypothesis and price pressure hypothesis.