Determinants of the Informativeness of Analyst Research

54 Pages Posted: 19 Apr 2002

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Joseph Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 2003

Abstract

Analyst research helps prices reflect information about a security's fundamentals. However, analysts' private incentives potentially contribute to misleading research and it is possible that the market fixates on such misleading and/or optimistic reports. We examine cross-sectional determinants of the informativeness of analyst reports, i.e., their effect on security prices, controlling for endogeneity among the factors affecting informativeness. Analysts are more informative when the potential brokerage profits are higher (e.g., high trading volume and high volatility) and when they reveal "bad news." Analyst informativeness is reduced in circumstances of increased information processing costs. We fail to find evidence that informativeness of analyst reports is due to market's fixation or over- or under-reaction to analyst reports.

Keywords: Analyst, Forecast, Analyst Forecast, Earnings Forecast, Informativeness, Market Efficiency

JEL Classification: M41, G30, G14, G29

Suggested Citation

Frankel, Richard M. and Kothari, S.P. and Weber, Joseph Peter, Determinants of the Informativeness of Analyst Research (September 2003). MIT Sloan Working Paper No. 4243-02. Available at SSRN: https://ssrn.com/abstract=304483 or http://dx.doi.org/10.2139/ssrn.304483

Richard M. Frankel (Contact Author)

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Joseph Peter Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
617-253-4310 (Phone)

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