Equity Analyst Reports and Stock Prices

Astaiza-Gómez, J. G. and Pacheco, C. A. P. (2022). Equity Analyst Reports and Stock Prices. Apuntes del CENES, 41(73), 1-18.

21 Pages Posted: 12 May 2021 Last revised: 28 Apr 2022

See all articles by José Astaiza-Gómez

José Astaiza-Gómez

Universidad EAFIT; Universidad del Rosario - Faculty of Economics

Camilo Andres Pérez Pacheco

Corporación Universitaria Autónoma del Cauca

Date Written: March 31, 2021

Abstract

In this paper we carry out cointegration analyses, in order to study whether the relationship between analysts’ recommendations and their projected capital gains (or losses), is consistent with the hypothesis that sell recommendations are costlier than buy recommendations. We find that recommendations that plainly urge the investor to take action (buy, sell) are consistent with their estimated losses. We also find that recommendations react mildly to higher projected losses, and strongly to higher projected capital gains, which is consistent with systematic optimism. Additionally, we could establish that higher projected losses are positively related to dispersion in recommendations. In summary, we got evidence consistent with Womack’s (1996) hypothesis that the cost of issuing a sell recommendation is higher than the cost of a buy recommendation.

Keywords: sell-side analysts, intrinsic value, trading incentives, investment banking incentives, access to information

JEL Classification: G02, G14

Suggested Citation

Astaiza-Gómez, José Gabriel and Pérez Pacheco, Camilo Andres, Equity Analyst Reports and Stock Prices (March 31, 2021). Astaiza-Gómez, J. G. and Pacheco, C. A. P. (2022). Equity Analyst Reports and Stock Prices. Apuntes del CENES, 41(73), 1-18., Available at SSRN: https://ssrn.com/abstract=3844284 or http://dx.doi.org/10.2139/ssrn.3844284

José Gabriel Astaiza-Gómez (Contact Author)

Universidad EAFIT ( email )

Carrera 49 N° 7 sur – 50
Medellín, Antioquia 00000
Colombia

Universidad del Rosario - Faculty of Economics ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

Camilo Andres Pérez Pacheco

Corporación Universitaria Autónoma del Cauca ( email )

POPAYAN, CO CAUCA
Colombia

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