The First Analyst Coverage of Neglected Stocks
Financial Management, Forthcoming
Posted: 12 Mar 2008 Last revised: 9 Mar 2010
Date Written: March 5, 2010
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: Suggested Citation