Roger K. Loh, René M. Stulz
Review of Financial Studies 24(2), 593–627 (2011).
Roger K. Loh, René M. Stulz. When Are Analyst Recommendation Changes Influential? Review of Financial Studies 24(2), 593–627 (2011).
IN ONE SENTENCE:
Only about one in eight analyst recommendation changes visibly move stock prices, with influence concentrated among particular analysts and circumstances.
Abstract:
The existing literature measures the contribution of analyst recommendation changes using average stock-price reactions. With such an approach, recommendation changes can have a significant impact even if no recommendation has a visible stock-price impact. Instead, we call a recommendation change influential only if it affects the stock price of the affected firm visibly. We show that only 12% of recommendation changes are influential. Recommendation changes are more likely to be influential if they are from leader, star, previously influential analysts, issued away from consensus, accompanied by earnings forecasts, and issued on growth, small, high institutional ownership, or high forecast dispersion firms.
Other Links/Materials:
SSRN / paper | Journal / DOI | Internet appendix | Slides
The Wall Street Journal: Markets Often Shrug at Analysts’ Calls, May 2009 — Press
NBER Digest, September 2009 — Research digest
Citigroup Academic Digest, June 2009 — Practitioner digest
Asian Scientist: Analyzing the Analysts, 2014 — Research digest, SMU Office of Research
Keywords:
Analyst recommendations · Information intermediaries · Stock-price reactions · Analyst influence · Sell-side analysts · Recommendation changes · Information production · Earnings forecasts · Consensus