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The Two Faces of Analyst Coverage

37 Pages Posted: 8 Jan 2009  

John A. Doukas

Old Dominion University - Strome College of Business

Chansog (Francis) Kim

The State University of New York at Stony Brook

Christos Pantzalis

University of South Florida

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Date Written: February 16, 2005

Abstract

We find that positive excess (strong) analyst coverage is associated with overvaluation and low future returns. This finding is consistent with the view that excessive analyst coverage, driven by investment banking incentives and analyst self-interests, raises investor optimism causing share prices to trade above fundamental value. However, weak analyst coverage causes stocks to trade below fundamental values. This finding indicates that investors tend to believe that these firms are more likely to be plagued by information asymmetries and agency problems. The results remain robust after controlling for the possible endogenous nature of analyst coverage and analysts┬┐ self-selection bias.

Keywords: Analyst coverage, Mis-pricing

JEL Classification: G10, G11, G12

Suggested Citation

Doukas, John A. and Kim, Chansog (Francis) and Pantzalis, Christos, The Two Faces of Analyst Coverage (February 16, 2005). Available at SSRN: https://ssrn.com/abstract=696441 or http://dx.doi.org/10.2139/ssrn.696441

John A. Doukas

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Chansog (Francis) Kim (Contact Author)

The State University of New York at Stony Brook ( email )

Stony Brook, NY 11794
United States
248-525-4051 (Phone)
631-632-9412 (Fax)

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

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