Journal of Financial and Quantitative Analysis

Research Article

Analysts, Industries, and Price Momentum

Leslie Bonia1 and Kent L. Womacka2

a1, University of New Mexico, Anderson Schools of Management, 1924 Las Lomas NE, Alburquerque, NM 87131

a2, Dartmouth College, Tuck School of Business at Dartmouth, Hanover, NH 03755.


This paper examines the value of analysts as industry specialists. We show analysts create value in their recommendations mainly through their ability to rank stocks within industries. An industry-based recommendation strategy substantially improves the return to risk ratio and reduces price momentum tilt relative to portfolios that ignore industry information. An examination of the links among analyst information, aggregated at the industry level, and industry returns and industry momentum shows that industry returns precede industry-aggregated analyst upgrades and downgrades, and the short-term industry price momentum phenomenon is partly explained by returns of firms with more analyst coverage leading those with less in that industry. Recommendation information is not valuable for predicting future relative industry returns, however.