Evaluating Analysts' Value: Evidence from Recommendations Around Stock Price Jumps

46 Pages Posted: 26 Mar 2010

See all articles by George J. Jiang

George J. Jiang

Washington State University

Woojin Kim

Seoul National University - Business School

Date Written: March 15, 2010

Abstract

Recent literature documents that the issuance of analyst recommendations tends to coincide with important corporate events, but offers mixed evidence on whether such recommendations have added value. In this paper, we use large discontinuous stock price changes, known as jumps, to proxy for corporate “events” with significant information shock and reexamine the potential value of analyst revisions. Consistent with the literature, we find that analysts revise their recommendations more frequently on days with jumps in stock prices. These contemporaneous revisions, although accounting for only 10% of the revision sample, 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 average of abnormal 4.5% return over a 6-month horizon.

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

JEL Classification: G14, G24

Suggested Citation

Jiang, George and Kim, Woojin, Evaluating Analysts' Value: Evidence from Recommendations Around Stock Price Jumps (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=1570922 or http://dx.doi.org/10.2139/ssrn.1570922

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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