Investment Research: Ignore the Ratings, Read the Reports

Investment research seems to be everywhere -- both online and off -- but what is it? At its core, this investment research is financial analysis performed in order to derive an actionable investment recommendation. These research-based recommendations (issued in formal written reports) constitute the basis of broker solicitation for the buying and selling of securities.

Financial analysts ' actions are well publicized, and as a result, their recommendations can significantly impact security prices and your investment portfolio. So here is The Finance Professor's primer on investment research.

Price Moves

Typically, in the short term, the market's reaction to analyst research tends to be immediate and binary. In other words, if an analyst upgrades his or her opinion of a particular stock, then the stock price will likely rise, and if they downgrade their opinion, then the price will most likely fall. This is akin to the first point in "Five Missteps to Avoid in Earnings Season." As with an earnings report, initially, the market will react (either up or down) to a headline, but once everyone digs into the details, they are able to discern a better investment strategy. ...