Is Sell-Side Research More Valuable in Bad Times?
Singapore Management University - Lee Kong Chian School of Business
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
July 18, 2014
Charles A. Dice Center Working Paper No. 2013-19
Fisher College of Business Working Paper No. 2013-03-19
In bad times, higher macroeconomic uncertainty makes it harder for investors to assess firms’ prospects. Learning models suggest that informative signals like analyst research should be valued more in bad times. However, higher uncertainty and career concerns may make analyst signals noisier and less valuable in bad times. Examining a large sample of analyst signals, we find that analysts work harder in bad times, but they disagree more and make more inaccurate earnings forecasts. Yet, revisions to forecasts and recommendations have a greater stock-price impact in bad times. These effects are stronger for the financial industry during the credit crisis.
Number of Pages in PDF File: 44
Keywords: Security Analysts; Stock Recommendations; Earnings Forecasts; Crisis; Recessions; Uncertainty; Learning
JEL Classification: G14, G20, G24
Date posted: December 18, 2013 ; Last revised: July 19, 2014
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