Information Content of Equity Analyst Reports

55 Pages Posted: 22 Oct 2002

See all articles by Michael B. Mikhail

Michael B. Mikhail

University of Illinois at Chicago - College of Business Administration

Paul Asquith

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER)

Andrea S. Au

State Street Corporation

Multiple version iconThere are 3 versions of this paper

Date Written: November 4, 2003

Abstract

This paper catalogs the complete text of a large sample of All-American Analyst reports and examines the market reaction to the information released. It shows that the text of the report, which provides the justifications supporting an analyst's summary opinion, provides information beyond that contained in earnings forecasts, recommendation levels, and price targets. Including the strength of the analyst's justifications, reduces, and in some models eliminates, the significance of the information available in earnings forecasts and recommendation revisions. By controlling for the simultaneous release of other information, we show that analyst reports do not merely repeat firm releases of information, but also provide both new information and/or interpretation of previously released information to the market. By examining whether the market's reaction differs by report type (i.e. upgrade, reiteration, or downgrade), we demonstrate that information in a report is most important for downgrades and that target prices and the strength of the justifications are the only elements that matter for reiterations. Finally, we find no correlation between the valuation methodology used by analysts and either the market's reaction to a report's release or the analyst's accuracy. Our adjusted R2 of nearly 26% is three or four times larger than that of other studies using only partial content from analyst reports.

Keywords: Stock recommendations, price targets, earnings forecasts, security analysts

JEL Classification: G11, G14, G24, M41

Suggested Citation

Mikhail, Michael B. and Asquith, Paul and Au, Andrea S., Information Content of Equity Analyst Reports (November 4, 2003). MIT Sloan Working Paper No. 4264-02. Available at SSRN: https://ssrn.com/abstract=332662 or http://dx.doi.org/10.2139/ssrn.332662

Michael B. Mikhail (Contact Author)

University of Illinois at Chicago - College of Business Administration ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States

Paul Asquith

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrea S. Au

State Street Corporation ( email )

State Street Financial Center
1 Lincoln Street
Boston, MA 02111
United States

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