Here's one way to evaluate equity research: Measure the impact it has on stock prices. Bespoke Investment Group, a financial research firm, did just that, and apparently, Robert W. Baird takes top honors. Out of 16 firms, Baird's upgrades impacted stocks the most, driving prices up (on average) 3.09 percent in a single day. Merrill Lynch's research came in just a hair behind Baird's: Its analyst upgrades caused an average one-day pop of 3.08 percent. Bespoke studied the impact of analyst upgrades and downgrades dating back to 2002, but filtered out rating changes that coincided with earnings reports, or covered stocks trading at less than $10 per share. Matrix Research came in last place — its upgrades caused price moves of 0.90 percent. As for downgrades, Merrill Lynch was the leader. The firm's analyst downgrades kicked stock prices down (on average) 4.95 percent in a single day.
WHOSE RATING CHANGES PACK THE MOST PUNCH
Bespoke counted the number of upgrades and downgrades each firm made between 2002 and September of 2007, and then measured the percent change in equities being covered by the firms over an entire day of trading.
| Firm | # of Upgrades | Average % Change Entire Day | # of Downgrades | Average % Change Entire Day |
|---|---|---|---|---|
| Robert W. Baird | 433 | 3.09% | 442 | -4.73% |
| Merrill Lynch | 431 | 3.08 | 563 | -4.95 |
| Deutsche Securities | 490 | 2.97 | 486 | -3.66 |
| Banc of America | 547 | 2.90 | 565 | -3.76 |
| Lehman Brothers | 527 | 2.87 | 469 | -2.72 |
| Bear Stearns | 459 | 2.83 | 403 | -4.15 |
| JP Morgan | 697 | 2.73 | 696 | -3.73 |
| Goldman Sachs | 438 | 2.69 | 500 | -2.95 |
| Wachovia | 383 | 2.64 | 481 | -3.15 |
| Credit Suisse | 546 | 2.60 | 634 | -3.85 |
| UBS | 867 | 2.55 | 941 | -3.28 |
| Morgan Stanley | 490 | 2.46 | 540 | -2.72 |
| Prudential | 481 | 2.40 | 482 | -3.20 |
| Citigroup | 666 | 2.38 | 734 | -4.04 |
| A.G. Edwards | 370 | 2.29 | 488 | -2.91 |
| Matrix Research | 508 | 0.90 | 455 | -0.96 |
| Source: Bespoke Investment Group, LLC. | ||||