Capitalising on Analyst Earnings Estimates and Recommendations During Different Market Volatility Regime Periods in Europe
Journal of Asset Management, Vol. 8, No. 2, 2007
Posted: 1 Apr 2009
Date Written: June 30, 2007
Examining market-adjusted cumulative abnormal returns following European analyst earnings estimate and recommendation announcements, I find that both factors are significant when considered unconditionally and conditional on each other. When examining the strength of these factors during different market regime periods, however, I find that when the market or stock volatility for a given month is unusually high or dispersion between the market and stock volatilities is unusually low, the significance of both the EPS estimate and recommendation factors decrease or are non-existent. In addition, the least favorable quintile of securities - as measured by change in the earnings or recommendation factor - no longer exhibits the least favorable market-adjusted cumulative abnormal return. Since volatility is somewhat persistent, modifying analyst factor models based on recent market environments increases potential portfolio returns.
Keywords: Volatility, Regime, Europe, Earnings, Security Analysts
JEL Classification: G14, G15
Suggested Citation: Suggested Citation