Using Sell-Side Analysis to Predict the Future for Equity Markets
In this article I will try to study the ability of using sell-side analysts’ collective recommendations to forecast the future direction of the broader equity market. In an attempt to get an indication of the bullishness/bearishness among sell side analysts, I have compared the total “BUY” recommendations as a percentage of the total recommendations for each stock. Then I have taken the aggregate of this percentage for the overall market. Quite interestingly, most of the time analysts got it wrong. In fact, as I will show later in the article, this bullishness among the analysts can be used as a contrarian indicator to forecast the market direction.
In this analysis, I am using the S&P 500 and FTSE 100 indexes as these two indexes are two of the most covered markets. These indexes are relatively well diversified; hence the performance in one dominating sector will not distort the true picture.
Post the 2003 recession, overall analysts’ recommendations have become less bullish
Looking at the table and the chart given below, it becomes clear that since 2000, the analyst have become relatively less bullish with their calls. Interestingly, the GFC era doesn’t seems to have had a major impact on the analyst view. On average, U.S. analysts were more bullish than U.K. analysts, but the gap is closing.
Chart 1: Analyst becoming less bullish (Click to enlarge) Analysts were good at following the trend. By overlaying the index performance and analysts' bullishness in a chart, we can get an idea of analysts' performance with the market movements. In both these markets, analysts were good at following a trend. Post-2003, up until the GFC [global financial crisis], the equity markets followed a trend. In both the U.S. and the U.K., analysts managed to track market trends with their recommendations. Post-GFC, U.S. analysts were lagging with their recommendations in terms of following the market, but U.K. analysts were quick to start following the market. Chart 2: Post-GFC, U.S. analysts were lagging in terms of their bullishness (Click to enlarge) How good were the analysts in predicting future performances? Analysts are supposed to advise their clients about the future direction of the market, not to track the market direction with their bullishness. To test the effectiveness in predicting the future direction, I have plotted the succeeding 12 month performance since the day of the recommendation.
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Post-GFC, US analysts were lagging with their recommendations in terms of following the market, but UK analysts were quick to start following the market. How good were the analysts in predicting future performances? Analysts are supposed to advise
Traders have said that while higher OPEC output would pressure prices now, rising global demand later in the year will keep prices from collapsing, barring a return to global recession. Prices lost a potential prop after reversal of government decision
Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months. But the long-term benefits of homeownership remain very much intact. For now, at least,
About 45 minutes before the opening bell, Dow Jones Industrial Average futures slipped a point to 12124. S&P 500 futures gained a point to 1297 and the Nasdaq 100 gained 2 points to 2289. Changes in stock futures don't always accurately predict market
However strong art sales in China might be at the moment, it's doubtful that China really will be the future market center for art, or that its role in the art world is much more than a passing phase. Despite reasonable sales at the Hong Kong fair
Can Twitter predict the future? - Information Policy
Businesses are mining online messages to unearth consumers' moods - and even make market predictions One day in 2008 an anonymous Twitter user posted a message: “I am certainly not bored. way busy! feel great!” That is all well and good, one might think, but utterly uninteresting to anyone besides the author and, perhaps, a few friends. Not so, according to Johan Bollen, of Indiana University Bloomington, who collected the tweet, along with plenty of others sent that day. All were rated for emotional content. Many proved similarly chirpy, scoring high on confidence, energy and happiness. Indeed, Dr Bollen reckons, on the day the tweet was posted, America’s collective mood perked up a notch. When he and his team examined all the data for the autumn and winter of 2008, they found that Twitter users’ collective mood swings coincided with national events. Happiness shot up around Thanksgiving, for example.
http://www.economist.
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