Media Coverage of Analysts' Recommendations and Firm Share Prices
19 Pages Posted: 8 May 2011
Date Written: October 1, 2010
Traditional media (newspaper, TV) play an important role in disseminating information to a broad audience. Our study puts in relation analysts' recommendations media coverage and firm value. We put forth the hypothesis that the intensity of media coverage (number of buy and sell recommendations published in newspapers or broadcast) of analysts' recommendations boosts investor recognition of companies and influences their values even if the information is repeated and not new. Our results show that the number of recommendations influences share prices in the expected sense. The number of buy recommendations positively influences the variation in share prices: the greater the number of buy recommendations, the greater the increase in share prices. Conversely, the greater the number of sell recommendations, the greater the fall in share prices. However, causality tests performed don't really confirm the direction of the relation between number of recommendations and variation in prices. Thus, investors' perception measured by past share prices changes and analysts' perception measured by the number of their recommendations published seems to reinforce each other. In this sense, the number of buy or sell recommendations published in media can create positive (or negative) feedback and reinforce existent trends.
Keywords: Analysts' recommendations, media coverage, media effect, causality study
JEL Classification: G14
Suggested Citation: Suggested Citation