Patterns in Recommendation Changes, Investor Perceptions, and the Structure of Analysts’ Research Portfolios

56 Pages Posted: 10 Jan 2010

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: January 9, 2010

Abstract

We study whether analysts’ recommendations and the market’s reactions to recommendation changes are influenced by 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, diversified analysts, who cover stocks from industries other than their core industry, make less optimistic recommendations and are less likely to upgrade their recommendations. We also find that the market’s reactions, captured by announcement returns, are stronger for recommendation changes for non-core stocks and recommendation changes made by diversified analysts. Finally, all these patterns are significantly less pronounced after the passage of Regulation Fair Disclosure, suggesting that the bias in recommendations is the result of strategic considerations and not self-selection.

Keywords: analyst recommendations, research portfolio structure, market reaction

JEL Classification: D14, D82, D83, G24, M41

Suggested Citation

Kini, Omesh and Rebello, Michael J. and Wang, Jun, Patterns in Recommendation Changes, Investor Perceptions, and the Structure of Analysts’ Research Portfolios (January 9, 2010). Available at SSRN: https://ssrn.com/abstract=1533826 or http://dx.doi.org/10.2139/ssrn.1533826

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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