The First Analyst Coverage of Neglected Stocks

Financial Management, Forthcoming

Posted: 12 Mar 2008 Last revised: 9 Mar 2010

See all articles by Cem Demiroglu

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics

Michael D. Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: March 5, 2010

Abstract

We examine the first analyst coverage of 549 "neglected" stocks that publicly traded at least one year without research coverage. The stocks experience a 4.86% abnormal return at initiation announcement. Positive returns are driven by positive coverage and not the mere introduction of coverage. Initiations from investment banks elicit lower announcement returns if the bank had a prior business relationship with the covered firm. Research firms paid by the covered company to provide coverage elicit announcement returns that are not significantly different from other analysts. Announcement returns are also influenced by liquidity increases and factors consistent with downward sloping demand curves.

Keywords: analyst research, conflict of interest, investment bank, independent research, fee-based research, downward sloping demand curves for stock

JEL Classification: G12, G14, G24

Suggested Citation

Demiroglu, Cem and Ryngaert, Michael David, The First Analyst Coverage of Neglected Stocks (March 5, 2010). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1103962

Cem Demiroglu (Contact Author)

Koc University, College of Administrative Sciences and Economics ( email )

Koc University
Sariyer
Istanbul, 34450
Turkey
90-212-338-1620 (Phone)
90-212-338-1653 (Fax)

HOME PAGE: http://https://sites.google.com/site/cemdemiroglu/

Michael David Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9765 (Phone)

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