Short-Term Institutions, Analyst Recommendations, and Mispricing

54 Pages Posted: 19 Dec 2012 Last revised: 20 Apr 2018

Martijn Cremers

University of Notre Dame

Ankur Pareek

Rutgers University

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH; European Corporate Governance Institute (ECGI)

Date Written: March 5, 2018

Abstract

This paper documents that the interplay between the presence of short-term institutions and extreme analyst recommendations is associated with a speculative component in stock prices that results in temporary mispricing with predictable and large price reversals. In particular, stocks held by short-term investors with optimistic (pessimistic) analyst recommendations have large past out(under)-performance, followed by large negative (positive) future alphas. We find that short-term traders likely cause the mispricing by studying plausibly exogenous variation in the presence of short-term institutions arising from index reconstitutions.

Keywords: Short-term institutions; Analyst recommendations; Mispricing

Suggested Citation

Cremers, Martijn and Pareek, Ankur and Sautner, Zacharias, Short-Term Institutions, Analyst Recommendations, and Mispricing (March 5, 2018). Available at SSRN: https://ssrn.com/abstract=2190437 or http://dx.doi.org/10.2139/ssrn.2190437

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Ankur Pareek (Contact Author)

Rutgers University ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1646 (Phone)

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
1,081
rank
17,327
Abstract Views
5,436
PlumX