Abstract

http://ssrn.com/abstract=1293615
 
 

References (47)



 
 

Citations (15)



 


 



The Value of Research


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Alexander Ljungqvist


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

December 2007

NYU Working Paper No.

Abstract:     
We estimate the value added by sell-side equity research analysts and explore the links between analyst research, informational efficiency, and asset prices. We identify the value of research from exogenous changes in analyst coverage. On announcement that a stock has lost all coverage, share prices fall by around 110 basis points or $8.4 million on average. The share pricereaction is attenuated the more analysts continue to cover the stock, suggesting that there are diminishing returns to coverage at the margin. The adverse effect of coverage terminations is proportional to the analyst s reputation and experience and to the size of the broker s retail sales force. Exogenous reductions in coverage are followed by: less efficient pricing and lower liquidity; greater earnings surprises and more volatile trading around subsequent earningsannouncements; increases in required returns; and reduced return volatility. Simulations suggest investors can trade profitably on the volatility changes. Finally, retail investors sell and large institutional investors buy around coverage terminations, suggesting that different investor clienteles have different demands for analyst research.

Number of Pages in PDF File: 45

Keywords: Sell-side research, Coverage terminations, Informational efficiency, Global Settlement

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Date posted: November 3, 2008  

Suggested Citation

Kelly, Bryan T. and Ljungqvist, Alexander, The Value of Research (December 2007). NYU Working Paper No. . Available at SSRN: http://ssrn.com/abstract=1293615

Contact Information

Bryan T. Kelly
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Alexander Ljungqvist
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)
HOME PAGE: http://pages.stern.nyu.edu/~aljungqv
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
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References:  47
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