Stock Duration, Analysts Recommendations, and Misvaluation
University of Notre Dame
Frankfurt School of Finance & Management gemeinnützige GmbH
December 24, 2014
This paper empirically studies how the interaction between short-term investors and analyst recommendations is related to a speculative component in stock prices. Using a new measure of the holding duration of institutional investors (called Stock Duration), we document that frequently traded stocks with optimistic (pessimistic) analyst recommendations have large negative (positive) future alphas that follow large positive (negative) past outperformance. Using Russell 2000 index reconstitutions to capture exogenous changes in institutional ownership, Stock Duration and analyst coverage, we conclude that strong analyst recommendations serve as a coordination mechanism among short-term, likely speculative, traders, causing significant misvaluations and subsequent price reversals.
Number of Pages in PDF File: 46
Keywords: Investor Horizon, Short-Termism, Analysts, Mispricing
Date posted: December 19, 2012 ; Last revised: December 25, 2014
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