Salient Anchor, Limited Attention, and Analyst Recommendation Changes
59 Pages Posted: 1 Nov 2014 Last revised: 8 May 2019
Date Written: May 1, 2019
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. Collectively, our results indicate that analysts with limited attention tend to rely on salient anchor like the 52-week high for their recommendation decisions.
Keywords: salient anchor; limited attention; 52-week high; analyst recommendation changes; trading strategy
JEL Classification: G14; G24; D82; M41
Suggested Citation: Suggested Citation