The paper studies the impact of buy and sell recommendations issued by analysts on the stock prices of companies listed on the National Stock Exchange (NSE) of India. Event study methodology is used to compute the abnormal returns around the event window, which is taken as - 10 to +10. The study finds that buy recommendations issued by analysts on public domains help the investors generate abnormal returns on the day of the recommendation. On the other hand, sell recommendations do not show significant negative abnormal returns.

The efficient market hypothesis propagated by Fama (1970) states that a market in which the share prices fully reflect all the available information about a firm is said to be an efficient market. Fama (1970) then went on to classify the markets into three different types, depending on the type of information reflected by the prices in the market: weak formreflecting only historical prices; semi-strong form—reflecting the historical prices as well as any other publicly available information such as the earnings, dividends, and stock-splits; and strong form—which reflects all information about the company, historical prices, and publicly as well as privately available information.

It is commonly found that brokerage houses and analysts spend a considerable amount of time doing research on the information available about the firms, and hence are believed to have superior stock picking as well as market timing abilities. Though, if markets are semi-strong form efficient, then all publicly available information should be reflected in stock prices. Analyst recommendations should have no material impact on stock prices and, hence, should not facilitate abnormal returns for the investors.

Applied Finance Journal, Stock Prices, National Stock Exchange, NSE, Financial Markets, Indian Capital Markets, Investment Strategies, Market Model Parameters, Pre-recommendation Days, Post-recommendation Days, Financial Economics, Technical Analysis.