Commentary: When stock analysts move markets, should retail investors follow?

Commentary

Retail investors should be cautious about buying or selling shares simply because they read in the news that an analyst has changed a recommendation, says NTU finance professor Roger Loh.

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04 Nov 2026 06:00AM

SINGAPORE: Shares of at least two Singapore-listed firms made headlines last month after their shares fell sharply following downgrades by stock market analysts.

OCBC shares tumbled nearly 6 per cent on Oct 7 after Citi cited softer-than-expected third-quarter earnings expectations and downgraded the bank to “sell”. Days later, Sheng Siong shares fell as much as 3 per cent on the back of a downgrade by Maybank to “hold” and a cut in target price.

How can a single analyst’s opinion have such a dramatic impact on a company’s share price? Should retail investors follow these recommendations?

NOT ALL ANALYST REPORTS INFLUENCE THE MARKETS

Analysts employed by financial institutions study the companies they cover, forecast their earnings and recommend whether investors should buy, hold, or sell their shares. Their research helps institutional investors assess what companies are worth, with the information ultimately reflected in market prices. A vibrant analyst research sector is therefore an important part of a well-developed equity market.

But producing market-moving research is incredibly difficult. Thousands of investment professionals are constantly evaluating publicly-listed companies. For an analyst report to move a stock price significantly, it must offer new insights that investors have not yet incorporated into their valuations.

In a 2011 study where my co-author and I examined more than 150,000 analyst recommendation changes for US stocks, we found only about one in eight such changes were accompanied by a large stock-price movement in the direction of the change. Most had no discernible impact on share prices, when measured from the day the recommendation was issued through the following trading day.

To illustrate just how difficult it is to produce market-moving research, one in four analysts in our study never issued a single influential recommendation change. Even among those who had managed to move stock prices at least once, only one in five of their recommendation changes were significant.

WHEN DO STOCK CALLS BECOME MARKET-MOVING?

So, when does an analyst recommendation change become impactful?

Track record matters. Analysts who have moved markets before, won awards or have a history of issuing recommendations ahead of their peers tend to be more influential.

Recommendations that move away from the prevailing consensus, or are accompanied by earnings forecasts, are more likely to move stock prices too.

Company characteristics also play a role. Analyst recommendations tend to be more influential for smaller companies, growth stocks, and companies where analysts disagree considerably about future earnings.

These findings are based on historical US data but the underlying economic reasoning suggests that similar forces may operate here in the Singapore market. 

Both the OCBC and Sheng Siong downgrades were accompanied by downward revisions to earnings forecasts. Citi's downgrade of OCBC was also clearly contrarian, going against the prevailing more positive views of other analysts.

WHAT IT MEANS FOR RETAIL INVESTORS

For retail investors, the crucial question is whether they can profit by following analyst recommendations they read about in the news. The answer is that it is difficult.

Stock prices react very quickly to influential recommendations. Our research finds that almost all of the stock-price reaction around recommendations occurs on the day the report is issued and the following trading day. 

By the time retail investors read about a downgrade in the news, much of the price adjustment may already have occurred. Academic studies have nevertheless found that share prices can continue moving in the direction of analyst recommendation changes for up to a month.

Take the example of an investor who sold shares immediately after reading about the recent downgrades. They might have avoided further losses, but profiting from a single recommendation does not show that following analyst calls is a reliably profitable strategy.

To reliably capture profits, investors have to react to analyst recommendations quickly – typically within a day – and trade systematically across many recommendation changes rather than just a few selected ones. 

That is extremely difficult for retail investors who may only learn about these changes after prices have reacted. They are therefore unlikely to replicate these returns, particularly after accounting for trading costs such as brokerage commissions.

This is why retail investors should be cautious about buying or selling shares simply because they read in the news that an analyst has changed a recommendation.

LOOK BEYOND THE BUY OR SELL RATING

This does not mean analyst reports are unimportant to retail investors. Their greatest value lies in helping investors understand companies rather than providing immediate trading signals.

Instead of focusing solely on an analyst’s recommendation or target price, investors should examine the assumptions behind the recommendation. What earnings growth does the analyst expect? What are the key drivers of profitability? What risks could cause the forecast to be wrong?

A downgrade does not necessarily mean a company's business has deteriorated. An analyst might still expect earnings to grow but conclude that the share price has risen too far relative to those prospects.

Different analysts can also arrive at different recommendations because they make different assumptions about future earnings, risks and appropriate valuations. Rather than seeing these disagreements as confusing, investors should use them to identify the uncertainties that matter most.

MAKE ANALYST RESEARCH MORE ACCESSIBLE

Access to analyst research also highlights the information gap between institutional and retail investors.

This is not unique to Singapore. Full analyst reports are often available only to institutional clients or customers of the bank or brokerage producing the research. Retail investors without such access typically learn about recommendation changes in the news, often after much of the stock-price reaction has occurred. Moreover, media reports rarely contain the detailed analysis underlying these recommendations.

In the past, retail investors might have lacked the time or expertise to digest lengthy analyst reports filled with technical jargon. Now, large language models can make it much easier for investors to understand these reports, compare analysts' assumptions, and identify key areas of disagreement. This makes access to the underlying research more valuable than ever.

Initiatives such as the Grant for Equity Market Singapore (GEMS) programme, which supports research coverage of companies listed on the Singapore Exchange (SGX), are therefore welcome. SGX also posts a selection of analyst reports on its website. Greater efforts by exchanges and brokerages to make more analyst research accessible would help narrow the information gap between institutional and retail investors.

Roger Loh is an Associate Professor and Deputy Head of the Division of Finance at Nanyang Business School, Nanyang Technological University.

Source: CNA/sk