Analyzing the Analysts: When Do Recommendations Add Value?

Jegadeesh, Narasimhan; Kim, Joonghyuk; Krische, Susan D.; Lee, Charles M.C.

doi:10.2139/ssrn.291241

Cited by 150 publications

(65 citation statements)

References 32 publications

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“…For the three-day period surrounding the announcement, Panel A shows that upgraded firms have a significant mean share price response of 1.63%. This result is consistent with that of Stickel (1995), Womack (1996), and Jegadeesh et al (2002). The mean share price response of industry rivals to an upgrade is positive and significant as well, with a three-day CAR of 0.11%.…”

Section: Valuation Effectssupporting

confidence: 87%

“…In this case, industry rivals are likely to experience competitive effects, or valuation effects in the opposite direction of those experienced by the rated firm. Jegadeesh et al (2002) offer this argument as a possible interpretation of their findings of incremental predictive power in analyst rating changes. In addition, studies by Laux, Starks, and Yoon (1998) and Lang and Stulz (1992) develop these competitiveness arguments in connection with dividend revision announcements and bankruptcy announcements, respectively.…”

Section: Predictionsmentioning

confidence: 97%

“…They have the opportunity to analyze the information of one firm relative to industry rivals and then form judgments regarding the intrinsic value of the firm's stock. Additionally, analyst ratings are unique in that rather than simply reporting forecasts or estimates, they actually make recommendations to investors (see Elton, Gruber, and Grossman 1986;Jegadeesh et al 2002).…”

Section: Introductionmentioning

confidence: 99%

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Industry Effects of Analyst Stock Revisions

Akhigbe

Madura

Newman

2006

J of Financial Research

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We examine the industry valuation effects of analyst stock revisions and identify the variables that influence these effects. Our results show that industry rivals experience significant abnormal returns in response to revision announcements. Although the mean stock price response suggests contagion effects, there is also evidence of significant competitive effects. The valuation effects are influenced by the magnitude of the rated firm's announcement return, along with analyst-specific and industry-specific characteristics. However, the sensitivity of the valuation effects to these characteristics is conditioned on whether the industry effects are contagious or competitive. 2006 The Southern Finance Association and the Southwestern Finance Association.

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Section: Valuation Effectssupporting

confidence: 87%

Section: Predictionsmentioning

confidence: 97%

Section: Introductionmentioning

confidence: 99%

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Industry Effects of Analyst Stock Revisions

Akhigbe

Madura

Newman

2006

J of Financial Research

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“…2 Whether such research is indeed valuable is open to debate. (For recent evidence on the information content of analyst research reports, see Mikhail, Asquith, and Au (2002) and Jegadeesh et al (2002)). a recommendation (possibly including unfavorable ones) only 75% of the time.…”

mentioning

confidence: 99%

Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?

Cliff¹,

Denis

2004

The Journal of Finance

348

140

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We report that initial public offering (IPO) underpricing is positively related to analyst coverage by the lead underwriter and to the presence of an all-star analyst on the research staff of the lead underwriter. These findings are robust to controls for other determinants of underpricing and to controls for the endogeneity of underpricing and analyst coverage. In addition, we find that the probability of switching underwriters between IPO and seasoned equity offering is negatively related to the unexpected amount of post-IPO analyst coverage. These findings are consistent with the hypothesis that underpricing is, in part, compensation for expected post-IPO analyst coverage from highly ranked analysts.INVESTMENT BANKERS PROVIDE a wide range of services to firms issuing new shares through an initial public offering (IPO). These services include pre-IPO activities, related to the pricing, marketing, and distribution of the offering, as well as post-IPO activities such as price stabilization, market making, and analyst research coverage. Despite the variety of services provided to issuers and the variation in issuer characteristics, there is surprisingly little variation in the direct costs of completing an IPO. Chen and Ritter (2000) and Hansen (2001) show that underwriter spreads in IPOs are clustered at 7% for all but the very smallest and very largest offerings. Moreover, a 15% overallotment option is a standard feature of IPO contracts.Both anecdotal and academic evidence indicate that research coverage has become an essential element of the security issuance process in recent years. Press reports indicate that star analysts play an important role in securing

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“…Earnings forecasts are crucial to investors, because, like stock recommendations, they are considered to be one of the most important parameter estimates that are supplied by the analyst market (Keon, 1996;Womack, 1996;Jegadeesh et al 2001). Two main approaches to valuation-the discounted cash flow approach, in which earnings take center stage, and the multiple of earnings per share approach (Brealey and Myers, 2000)-further justify the emphasis that is given to earnings forecasts by financial analysts.…”

Section: Introductionmentioning

confidence: 99%

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

Fan

Yeh

2006

Rev Quant Finan Acc

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Several trends in the insurance and financial services industry, including demutualizationconsolidation, and deregulation, have attracted increasing attention from investors and financial analysts. This paper investigates the accuracy of the earnings forecasts of financial analysts for insurance companies. Our empirical results indicate that analyst forecasts outperform random walk time-series forecasts. Furthermore, we find that both disagreement over earnings forecasts among analysts and the relative forecasting error in the mean forecasts is smaller for life insurers than for property-casualty insurers, whereas the relative errors for forecasts for multiple-line insurers are in between the two. Forecasting error is a negative function of firm size and the number of analysts who are following a company, and is a positive function of the disagreement among analysts.Analyst forecasts have a timing advantage over the random walk model. Our results also suggest that the fair value reporting requirement (SFAS 115), which has been in effect since 1994, has enhanced the accuracy of analyst forecasts. The SFAS 115 has improved the superiority of analyst forecasts over the random walk forecasts for life insurers, but not for property-casualty insurers, and there is a weak improvement for multiple-line insurers. Copyright Springer Science + Business Media, Inc. 2006analyst forecasts, insurance companies, fair value reporting,

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Analyzing the Analysts: When Do Recommendations Add Value?

Cited by 150 publications

References 32 publications

Industry Effects of Analyst Stock Revisions

Industry Effects of Analyst Stock Revisions

Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing?

Analyst Earnings Forecasts for Publicly Traded Insurance Companies

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