Salient Anchor, Limited Attention, and Analyst Recommendation Changes

59 Pages Posted: 1 Nov 2014 Last revised: 8 May 2019

See all articles by Fengfei Li

Fengfei Li

Deakin University - Faculty of Business and Law

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: May 1, 2019

Abstract

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

Li, Fengfei and Lin, Chen and Lin, Tse-Chun, Salient Anchor, Limited Attention, and Analyst Recommendation Changes (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=2517238 or http://dx.doi.org/10.2139/ssrn.2517238

Fengfei Li

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Tse-Chun Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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