Firm Uncertainty and Financial Analysts' Activity

Abstract

Using implied volatility surfaces provided by the Optionmetrics database for the period 2003–2007, this study documents the strong, positive relation between investor perceptions of firm uncertainty and financial analysts’ activity. Granger causality tests reveal that an increase in perceived uncertainty leads to a subsequent increase in financial analysts’ activity, but this increase in activity does not seem to lead to lower firm uncertainty perceptions. The results from a sample of merger and acquisition transactions completed by S&P500 firms confirm a positive relation between firm uncertainty perceptions and financial analysts’ subsequent activity.

Keywords: Financial analysts, Uncertainty, Implied volatility

JEL Classification: G14