Emerging Issues in Evaluating Market Efficiency: Part 2 – Analyst Coverage in the 21st Century

Abstract

When an unknown and untested research firm in an online report accused publicly traded Orient Paper Inc. of chronic financial fraud, the company’s stock fell almost 40 percent in the three days following the publication. This case is representative of a broader shift in how capital markets research, examine, and evaluate companies since the advent of the Internet. This shift is especially important for stocks with less coverage by traditional equity analysts. While the 1989 Cammer decision focuses on traditional analysts, it is important to incorporate an understanding of how value-relevant information is disseminated in the Internet age into the evaluation of market efficiency for a security.

Keywords: securities litigation, market efficiency, analyst coverage, fraud-on-the-market, Cammer decision

JEL Classification: K22, G14