The Value of Analysts' Buy Recommendations : Evidence from the Swedish Industrial Sector

Sammanfattning

This thesis examines how the stock market reacts to analysts’ buy recommendations in the Swedish industrial sector and evaluates the accuracy of target prices. The study combines event study methodology to measure short-term abnormal returns with an analysis of forecast errors to assess target price accuracy. The sample includes analyst recommendations for firms listed on Nasdaq Stockholm between 2022 and 2025. The findings show that buy recommendations do not generate statistically significant abnormal returns, except for mid cap firms in the [-1,1] window, where a negative significant effect is observed. This suggests that there is no significant market reaction following the announcement. The findings of forecast errors show that the mean forecast error is positive and significant, indicating a systematic optimism bias in analysts’ target prices. This is further supported by the fact that target prices are only met in 40.26% of the observations. Taken together, the findings imply that investors do not fully rely on analysts’ buy recommendations. This study contributes to the literature by providing recent evidence from a non-U.S. market and highlights the importance of critically examining buy recommendations in decision-making.