Salient Anchor and Analyst Recommendation Downgrade
60 Pages Posted: 1 Nov 2014 Last revised: 30 Apr 2020
Date Written: April 25, 2020
We find that analysts are more likely to downgrade stocks when prices approach the 52-week high. The results are stronger for stocks with higher information asymmetry but moderated by analysts’ reputation, work experience, and educational background. We also find a strategy that shorts stocks with recommendation downgrades is less profitable for the downgrades near 52-week high than for other downgrades. Moreover, these downgraded firms with prices near 52-week high subsequently experience relatively less negative earnings forecast revisions. These results suggest that these downgrade decisions are less likely to be information-driven and consistent with our anchoring interpretation.
Keywords: salient anchor; 52-week high; analyst recommendation changes; limited attention; trading strategy
JEL Classification: G14; G24; D82; M41
Suggested Citation: Suggested Citation