Bridge over ocean
29 August 2019 CFA Institute Journal Review

Country-Level Analyst Recommendations and International Stock Market Returns (Digest summary)

  1. Sadaf Aliuddin, CFA

Country-level yield recommendations, according to the authors, can provide useful information for international stock market return predictions. These “aggregate analyst recommendations” are defined as the value-weighted average of all outstanding recommendations for stocks of firms incorporated in a country. A trading strategy based on such recommendations can potentially derive superior returns.

What Is the Investment Issue?

A country-level trading strategy based on aggregate yield recommendations can yield superior returns.

How Did the Authors Conduct This Research?

The country-specific measure of aggregate analyst recommendations is the value-weighted average of all outstanding recommendations in that country. The authors base their research on analyst recommendations for 33 countries/markets derived from the I/B/E/S Recommendation Detail files for US and international stocks from January 1994 to June 2015, except for Poland and Russia. These 33 countries/markets have more than 10,000 recommendations in I/B/E/S for stocks listed on their domestic stock exchanges in this period, and their data are available from Compustat.

The sample consists of all kinds of recommendations, and the authors use only those that adhere to a set of defined criteria, including CUSIP/SEDOL identification, analyst association, recommendation type, country domicile code, and announcement date. Recommendations from cross-listed issues are excluded. Additional data on the stocks are extracted from Compustat.

The authors use monthly value-weighted gross total return indexes from the MSCI database for each individual market (expressed in US dollars), relevant regions, and the world market. Robustness tests are based on value-weighted market returns of stocks used in the calculation of the corresponding aggregate recommendation for a given market-month.

The risk-free rate is taken as the one-month US Treasury bill rate, global factor returns are derived from Kenneth French’s website (, and the monthly currency risk factors are from Adrien Verdelhan’s website (

What Are the Findings and Implications for Investors and Investment Professionals?

Practitioners can use this research to improve their country-level trading techniques. The authors demonstrate that their trading strategy based on country-level recommendations can yield a return of around 1% a month. They reason that this approach is superior because it aggregates recommendations to help predict changes in GDP and aggregates earnings surprises for the next quarter. Averaging stock recommendations for all stocks in a country diversifies the risk of imperfect information, such that it reflects only the common information component obtained from firms, which is not fully reflected in individual stock prices. Therefore, future aggregate cash flows leading to associated market returns in different countries can be assessed more accurately. The results are robust to different international asset pricing models, portfolio construction rules, and measurement windows.

The authors illustrate their results through the example of a self-financing hedge portfolio that yields a return of around 1% a month by buying the stock market indexes of the markets with the most favorable analyst recommendations and simultaneously selling the stock market indexes of markets with the least favorable analyst recommendations.

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