Roger K. Loh, René M. Stulz
Journal of Finance 73(3), 959–1013 (2018).
Roger K. Loh, René M. Stulz. Is Sell-Side Research More Valuable in Bad Times? Journal of Finance 73(3), 959–1013 (2018).
IN ONE SENTENCE:
Analyst research moves stock prices more in bad times, when uncertainty is high and investors have greater difficulty valuing firms.
Abstract:
Because uncertainty is high in bad times, investors find it harder to assess firm prospects and hence should value analyst output more. However, higher uncertainty makes analysts’ tasks harder, so it is unclear whether analyst output is more valuable in bad times. We find that in bad times, analyst revisions have a larger stock-price impact, earnings forecast errors per unit of uncertainty fall, and analyst reports are more frequent and longer. The increased impact of analysts is also more pronounced for harder-to-value firms. These results are consistent with analysts working harder and investors relying more on analysts in bad times.
Other Links/Materials:
SSRN / paper | Journal / DOI | Internet appendix | Slides
Journal of Investment Management 18(3), 2020 — Adaptation of the paper for a practitioner audience
Keywords:
Security analysts · Recessions · Financial crises · Information value · Sell-side research · Analyst revisions · Economic uncertainty · Firm valuation · Information intermediaries