Analyst Interest as an Early Indicator of Firm Fundamental Changes and Stock Returns
Michael J. Jung
New York University - Leonard N. Stern School of Business
M.H. Franco Wong
INSEAD; University of Toronto - Rotman School of Management
Yale School of Management
October 15, 2013
In this study, we propose that analyst interest — the number of analysts who participate on a firm’s earnings conference call — is an early indicator of a firm’s future fundamentals and capital market activities. We find that changes in analyst interest from the prior quarter are positively associated with future sales growth and earnings surprises. Changes in analyst interest also precede changes in capital market activities such as analyst coverage, institutional ownership, and trading volume. Finally, we find that changes in analyst interest are positively correlated with future stock returns. Cross sectional analyses indicate that the marginal effect of analyst interest is strongest for neglected firms. Overall, our results suggest that analyst interest is a leading indicator of firm fundamentals and offers a one-step-ahead advantage in analyzing stock market dynamics.
Number of Pages in PDF File: 47
Keywords: analyst interest, firm fundamentals, analyst coverage, institutional ownership, trading volume, stock returns
JEL Classification: G11, G12, G14, G31, M41working papers series
Date posted: May 5, 2012 ; Last revised: October 16, 2013
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