Analyst Research and Investor Reactions: Evidence from the 2008 Financial Crisis
37 Pages Posted: 10 Aug 2012 Last revised: 23 Nov 2012
Date Written: November 23, 2012
In this paper we explore how the 2008 financial crisis impacted sell-side analysts’ research as well as the market reactions to the publication of such research. Based on over 350,000 analyst reports from 2005 to 2010, we find that during the crisis analysts only disproportionately adapted their expectations, relative to the stock market development. Overall, they maintained a positive view towards corporate performance and stock returns. Consequently, analysts’ accuracy with respect to target prices and earnings forecasts significantly deteriorated during the sub-period October 2007 to March 2009, leaving their research output (ex-post) less reliable to investors. Strikingly though, investors’ responses to target price and earnings forecast revisions were significantly stronger and more persistent during than outside the crisis. We conclude that investors relied most on analysts when they should have done so least.
Keywords: Financial Crisis, Analyst Reports, Forecast Accuracy, Abnormal Returns
JEL Classification: G01, G14, G24
Suggested Citation: Suggested Citation