Gauging Investor Perceptions of Analysts' Research Portfolio Structures

53 Pages Posted: 22 Oct 2008

See all articles by Omesh Kini

Omesh Kini

Georgia State University

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management

Jun Wang

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: October, 20 2008

Abstract

We study the relation between the market reaction to analyst recommendation changes and the structure of analysts' research portfolios. We find that analysts maintain more positive recommendations for stocks that belong to the "core industry" in their research portfolios, and are more likely to upgrade these core stocks. Consequently, analysts with more diversified research portfolios make less optimistic recommendations and are less likely to upgrade their recommendations. When we control for endogeneity in analysts' research portfolio choice, we find that the market's reaction is quite sensitive to research portfolio structure. Specifically, recommendation changes for non-core stocks generate stronger announcement returns and trading volume than for core stocks, and recommendation changes made by diversified analysts generate stronger market reactions than those made by specialized analysts. The patterns in trading volume are more pronounced for large trades. Finally, all the above documented patterns are significantly less pronounced after the passage of Regulation Fair Disclosure.

Suggested Citation

Kini, Omesh and Rebello, Michael J. and Wang, Jun, Gauging Investor Perceptions of Analysts' Research Portfolio Structures (October, 20 2008). Available at SSRN: https://ssrn.com/abstract=1287455 or http://dx.doi.org/10.2139/ssrn.1287455

Omesh Kini

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Jun Wang (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

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