Analysts’ recommendations: from which signal does the market take its lead?

Analysts’ recommendations: from which signal does the market take its lead? The stock market may respond to the difference between an analyst’s recommendation and that analyst’s previous recommendation and/or to the difference between the analyst’s recommendation and the consensus recommendation. We show that for the short-term market response the former is the clearer signal when both are examined simultaneously. We also show that the market’s reaction is strongly influenced by the analyst’s reputation, the divergence of opinion among analysts and the number of analysts following the stock. Previous studies have been hampered by having a low proportion of negative recommendations. We overcome this deficiency by studying the Australian market, in which institutional differences lead to analysts releasing many more negative recommendations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Analysts’ recommendations: from which signal does the market take its lead?

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0107-1
Publisher site
See Article on Publisher Site

Abstract

The stock market may respond to the difference between an analyst’s recommendation and that analyst’s previous recommendation and/or to the difference between the analyst’s recommendation and the consensus recommendation. We show that for the short-term market response the former is the clearer signal when both are examined simultaneously. We also show that the market’s reaction is strongly influenced by the analyst’s reputation, the divergence of opinion among analysts and the number of analysts following the stock. Previous studies have been hampered by having a low proportion of negative recommendations. We overcome this deficiency by studying the Australian market, in which institutional differences lead to analysts releasing many more negative recommendations.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 19, 2009

References

  • Stock prices and financial analyst recommendations
    Bjerring, JH; Lakonishok, J; Vermaelen, T

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