Analyst rating matters for index futures

Analyst recommendations convey valuable market-wide information which implies analyst rating should generate reliable predictability for future market returns. This paper examines the predictive regressions which forecast the S&P 500 index futures return and volatility with lagged text-based analyst rating index (TAR index). Empirical evidence shows that the TAR index generates superior in-sample predictability. This substantial predictability remains after controlling the business cycles, macroeconomic factors, and economic conditions. Also, the TAR index outperforms the prevailing mean out-of-sample and generates significant economic performance. Notably, the TAR index also delivers consistent predictive gains on the volatility of index futures returns.