Can investors profit from the prophets? Security analyst recommendations and stock

We document that purchasing (selling short) stocks with the most (least) fa vorable consensus recommendations, in conjunction with daily portfolio reba lancing and a timely response to recommendation changes, yield annual abnor mal gross returns greater than four percent. Less frequent portfolio rebala ncing or a delay in reacting to recommendation changes diminishes these ret urns; however, they remain significant for the least favorably rated stocks . We also show that high trading levels are required to capture the excess returns generated by the strategies analyzed, entailing substantial transac tions costs and leading to abnormal net returns for these strategies that a re not reliably greater than zero.