Equity Analysts and the Market’s Assessment of Risk

Lui, Daphne; Markov, Stanimir; Tamayo, Ane

doi:10.2139/ssrn.1087386

Download This Paper

Open PDF in Browser

Add Paper to My Library

Equity Analysts and the Market’s Assessment of Risk

Journal of Accounting Research, Forthcoming

42 Pages Posted: 10 May 2012 Last revised: 22 May 2012

See all articles by Daphne Lui

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Ane Tamayo

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: May 10, 2012

Abstract

The traditional view of equity analysts is that they are a source of new information about future cash flows. We broaden this view by demonstrating that equity analysts are also a substantive source of new information about priced risk. In particular, we document that when announced changes in analyst risk ratings distinctly and significantly affect equity returns, and are generally followed by significant changes in Fama-French factor loadings. Also, while less frequent than credit rating changes, equity risk rating changes are timelier, and with a larger overall stock price impact than credit rating changes.

Keywords: equity analysts, investment risk, risk ratings, factor loadings, credit ratings

JEL Classification: G14, G14, G29, M40

Suggested Citation: Suggested Citation

Lui, Daphne and Markov, Stanimir and Tamayo, Ane Miren, Equity Analysts and the Market’s Assessment of Risk (May 10, 2012). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1087386 or http://dx.doi.org/10.2139/ssrn.1087386