Short-Term Institutions, Analyst Recommendations, and Mispricing

50 Pages Posted: 19 Dec 2012 Last revised: 10 Mar 2017

Martijn Cremers

University of Notre Dame

Ankur Pareek

Rutgers University

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: March 8, 2017

Abstract

This paper documents how the interaction between the presence of short-term institutions and 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. Our results are robust to using Russell 2000 index reconstitutions to capture exogenous changes in institutional ownership, short-term trading, and analyst coverage.

Keywords: Investor Horizon, Short-Termism, Analysts, Mispricing

Suggested Citation

Cremers, Martijn and Pareek, Ankur and Sautner, Zacharias, Short-Term Institutions, Analyst Recommendations, and Mispricing (March 8, 2017). 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

Rutgers University ( email )

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

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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