The Confirmation Effect of Analyst Recommendation Reiterations

29 Pages Posted: 13 Jul 2016 Last revised: 27 Sep 2017

See all articles by Jing Chen

Jing Chen

University at Buffalo, SUNY

Michael J. Jung

University of Michigan, Stephen M. Ross School of Business

Joshua Ronen

New York University (NYU) - Department of Accounting

Date Written: September 26, 2017

Abstract

The vast majority of reports written by sell-side equity analysts conclude with a reiteration of the analyst’s existing recommendation on a firm’s stock. Yet there is a disproportionate amount of research that focuses on the market reactions of changes in recommendations and a prevailing sense that reiterations do not matter. In this paper, we test the hypothesis that reiterations of recommendations serve to resolve information uncertainty since the original recommendation was published and that they give rise to market reactions in the direction of the original recommendation, which we call a confirmation effect. Using a sample of analyst reports that do not contain any changes in recommendations, earnings forecasts, or price targets, we focus solely on reiterations and show that they are associated with proxies for information content, reductions in information uncertainty, and return reactions consistent with a confirmation effect.

Keywords: Analysts, Analyst recommendations, Reiterations, Confirmation effect

JEL Classification: M41, G24

Suggested Citation

Chen, Jing and Jung, Michael J. and Ronen, Joshua, The Confirmation Effect of Analyst Recommendation Reiterations (September 26, 2017). Journal of Accounting, Auditing and Finance, October 2017, Vol. 32, No. 4, pp. 576-592. Available at SSRN: https://ssrn.com/abstract=2808307

Jing Chen

University at Buffalo, SUNY ( email )

Jacobs Management Center
Buffalo, NY 14260-1660
United States

Michael J. Jung (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

Joshua Ronen

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street, Suite 400
Suite 10-180
New York, NY 10012-1118
United States
212-998-4144 (Phone)
212-995-4599 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jronen/

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