Evaluating Analysts’ Value: Evidence from Recommendations around Stock Price Jumps

42 Pages Posted: 20 Sep 2009

See all articles by George J. Jiang

George J. Jiang

Washington State University

Woojin Kim

Seoul National University - Business School

Date Written: September 14, 2009

Abstract

Recent literature documents that analyst recommendations tend to coincide with important corporate events, but offers mixed evidence on whether such recommendations have added value. In this paper, we use jump in stock price as a proxy for generic corporate “information event” and examine market reactions to recommendation revisions made around such events. Consistent with the literature, we find that analysts revise their recommendations more frequently on days with jumps in stock prices. Although such contemporaneous revisions account for only 10% of the sample, they explain up to a half (a third) of the initial market reactions for downgrades (upgrades). Nevertheless, when focusing on revisions made after stock price jumps - which are less likely influenced by confounding corporate events - we still find that these revisions contain significant price information. The added value is most pronounced for upgrades following positive jumps, with an extra 4.5% average return above those not following jumps over a 6-month horizon.

Keywords: Analyst Recommendations, Information Processing Ability, Stock Price Jumps, Corporate Event, Market Reactions

JEL Classification: G14, D83, G20

Suggested Citation

Jiang, George and Kim, Woojin, Evaluating Analysts’ Value: Evidence from Recommendations around Stock Price Jumps (September 14, 2009). Available at SSRN: https://ssrn.com/abstract=1472980 or http://dx.doi.org/10.2139/ssrn.1472980

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Woojin Kim (Contact Author)

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

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