Equity Analyst Reports and Stock Prices

Informes de renta variable y los precios de las acciones

Main Article Content

Abstract

In this paper we carry out cointegration analyses, in order to study whether the relationship between analysts’ recommendations and their projected capital gains (or losses), is consistent with the hypothesis that sell recommendations are costlier than buy recommendations. We find that recommendations that plainly urge the investor to take action (buy, sell) are consistent with their estimated losses. We also find that recommendations react mildly to higher projected losses, and strongly to higher projected capital gains, which is consistent with systematic optimism. Additionally, we could establish that higher projected losses are positively related to dispersion in recommendations. In summary, we got evidence consistent with Womack’s (1996) hypothesis that the cost of issuing a sell recommendation is higher than the cost of a buy recommendation.

Keywords:

Downloads

Download data is not yet available.

Article Details

Author Biography (SEE)

José Gabriel Astaiza Gómez, Universidad del Rosario

PhD in Economics

References (SEE)

Abreu, D., & Brunnermeier, M. K. (2003). Bubbles and crashes. Econometrica, 71(1), 173-204. https://doi.org/10.1111/1468-0262.00393

Allen, F., Morris, S., & Postlewaite, A. (1993). Finite Bubbles with Short Sale Constraints and Asymmetric Information. J. Econ. Theory, 61(2), 206-229. https://doi.org/10.1006/jeth.1993.1067

Budescu, D. V., & Budescu, M. (2012). How to Measure Diversity When You Must. Psychological Methods, 17(2), 215. https://doi.org/10.1037/a0027129

Cheng, Y, Liu, M. H. & Qian, J. (2006). Buy-Side Analysts, Sell-Side Analysts, and Investment Decisions of Money Managers. The Journal of Financial and Quantitative Analysis, 41(1), 51-83. https://doi.org/10.1017/S0022109000002428

Cowen, A., Groysberg, B., & Healy, P. (2006). Which Types of Analyst Firms Are More Optimistic? Journal of Accounting and Economics, 41(1-2), 119-146. https://doi.org/10.1016/j.jacceco.2005.09.001

De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Positive Feedback Investment Strategies and Destabilizing Rational Speculation. The Journal of Finance, 45(2), 379-395. https://doi.org/10.1111/j.1540-6261.1990.tb03695.x

https://doi.org/10.2307/2328662

Easterwood, J. C., & Nutt, S. R. (1999). Inefficiency in analysts' earnings forecasts: Systematic misreaction or systematic optimism? The Journal of Finance, 54(5), 1777-1797. https://doi.org/10.1111/0022-1082.00166

Francis, J. & Soffer, L. (1997). The Relative Informativeness of Analysts' Stock Recommendations and Earnings Forecast Revisions. Journal of Accounting Research, 35(2), 193-211. https://doi.org/10.2307/2491360

Hilary, G., & Hsu, C. (2013). Analyst Forecast Consistency. The Journal of Finance, 68(1), 271-297. https://doi.org/10.1111/j.1540-6261.2012.01800.x

Howe, J. S., Unlu, E. & Yan, X. (2009). The Predictive Content of Aggregate Analyst Recommendations. Journal of Accounting Research, 47(3), 799 - 821. https://doi.org/10.1111/j.1475-679X.2009.00337.x

Im K.S, Pesaran M.H. & Shin Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7

Jackson, A. R. (2005). Trade generation, reputation, and sell‐side analysts. The Journal of Finance, 60(2), 673-717. https://doi.org/10.1111/j.1540-6261.2005.00743.x

Jegadeesh, N, Kim, J., Krische, S. D. & Lee, C. (2004). Analyzing the Analysts: When Do Recommendations Add Value? The Journal of Finance, 59(3), 1083-1124. https://doi.org/10.1111/j.1540-6261.2004.00657.x

Joos, P., Piotroski, J.D., & Srinivasan, S. (2016). Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates. Journal of Financial Economics, 121, 645-663. https://doi.org/10.1016/j.jfineco.2016.05.003

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7

Li, X., Feng, H., Yan, S., & Wang, H. (2021). Dispersion in Analysts' Target Prices and Stock Returns. The North American Journal of Economics and Finance, 56, 101385. https://doi.org/10.1016/j.najef.2021.101385

Malmendier, U., & Shanthikumar, D. (2014). Do Security Analysts Speak in Two Tongues? The Review of Financial Studies, 27(5), 1287-1322.

https://doi.org/10.1093/rfs/hhu009

Mikhail, M. B., Walther, B. R., & Willis, R. H. (2007). When Security Analysts Talk, Who Listens? The Accounting Review, 82(5), 1227-1253. https://doi.org/10.2308/accr.2007.82.5.1227

Stickel, S. E. (1992). Reputation and Performance Among Security Analysts. The Journal of Finance, 47(5), 1811-1836. https://doi.org/10.1111/j.1540-6261.1992.tb04684.x

U.S. Department of Labor. (2016-17). Occupational Outlook Handbook, Financial Analysts. Bureau of Labor Statistics.

Womack, K. L. (1996). Do Brokerage Analysts' Recommendations Have Investment Value? The Journal of Finance, 51(1), 137-167. https://doi.org/10.1111/j.1540-6261.1996.tb05205.x

Zhang, M. & Zheng, J. (2017). A Robust Reference-Dependent Model for Speculative Bubbles. Journal of Economic Behavior & Organization, 137, 232-258. https://doi.org/10.1016/j.jebo.2017.03.015