Analyst Interest as an Early Indicator of Firm Fundamental Changes and Stock Returns

49 Pages Posted: 5 May 2012 Last revised: 8 May 2015

Michael J. Jung

New York University - Leonard N. Stern School of Business

M.H. Franco Wong

University of Toronto - Rotman School of Management

Frank Zhang

Yale School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 11, 2014

Abstract

We posit that a change in analyst interest in a firm is an early indicator of the firm’s future fundamentals, capital market activities, and stock returns. We measure increases in analyst interest by observing analysts who do not cover a firm but participate in that firm’s earnings conference call, and we measure decreases in analyst interest by observing analysts who cover a firm yet are absent from that firm’s call. We find that increases in analyst interest are positively associated with future changes in firm fundamentals and capital market activities, while decreases in analyst interest are negatively associated with capital market activities. We also find that increases (decreases) in analyst interest are positively (negatively) correlated with future stock returns over the next three months and that a hedge portfolio yields a significant abnormal return. Overall, our study shows that analyst interest is a novel and early indicator of future firm fundamentals and capital market consequences.

Keywords: analyst interest, firm fundamentals, analyst coverage, institutional ownership, trading volume, stock returns

JEL Classification: G11, G12, G14, G31, M41

Suggested Citation

Jung, Michael J. and Wong, M.H. Franco and Zhang, Frank, Analyst Interest as an Early Indicator of Firm Fundamental Changes and Stock Returns (July 11, 2014). The Accounting Review: May 2015, Vol. 90, No. 3, pp. 1049-1078. . Available at SSRN: https://ssrn.com/abstract=2050972 or http://dx.doi.org/10.2139/ssrn.2050972

Michael J. Jung

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States
212-998-0193 (Phone)

M.H. Franco Wong

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

Frank Zhang (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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