Are Analysts’ Recommendations Informative? Intraday Evidence on the Impact of Time Stamp Delays

Abstract

We demonstrate that time stamps reported in I/B/E/S for analysts' recommendations released during trading hours are systematically delayed. Using newswirereported time stamps, we find 30-minute returns of 1.83% (−2.10%) for upgrades (downgrades), but for this subset of recommendations we find corresponding returns of −0.07% (−0.09%) using I/B/E/S-reported time stamps. We also examine the information content of recommendations relative to management guidance and earnings announcements. Our evidence suggests that analysts' recommendations are the most important information disclosure channel examined.A LARGE BODY OF ACADEMIC research suggests that sell-side analysts play an important role in the price discovery process. Womack (1996) documents that recommendation changes generate a large and statistically significant threeday announcement period return, on average. This finding has been replicated in dozens of subsequent studies.1 However, recent papers by Altinkilic and Hansen (2009) and Altinkilic, Balashov, and Hansen (2010) challenge the view that analysts are important information intermediaries. Using intraday returns centered on recommendation revisions during trading hours, they find that revisions are associated with insignificant price reactions. They conclude that analysts "piggyback" by releasing recommendations soon after other news that materially impacts the stock price.

Stock return synchronicity and the market response to analyst recommendation revisions

“…Additional evidence of the informational value of analyst recommendations is provided by Barber et al (2010), Feldman, Livnat andZhang (2012), and Bradley, Clarke, Lee and Ornthanalai (2014) among others.…”

Evidence on the Information Content of Text in Analyst Reports

“…For example, if analyst report text is informative, then it is possible that part of the documented market reaction to the quantitative signals is attributable to its correlation with the textual information. Moreover, the recent debate in the literature about whether analysts are an important information intermediary is inconclusive (Altınkılıç and Hansen 2009;Altınkılıç, Balashov, and Hansen 2013;Bradley, Clarke, Lee, and Ornthanalai 2014), perhaps because these studies do not take into account the information role of analyst report text.…”

Analysts' Consensus and Target Price Accuracy: A Study in Latin America

“…1, e170036, 2017 www.anpad.org.br/bar The analysts are seen as information intermediaries and as responsible for reducing informational asymmetry, as pointed out by Bowen, Chen and Cheng (2008), Gu and Wu (2003), and Bradley, Clarke, Lee and Ornthanalai (2014). Given this, the role of analysts as informational intermediaries becomes relevant as investment in the stock market becomes popular and is poorly understood by many investors.…”

“…The literature suggests that analysts provide useful information to the market, contributing to the reduction of information asymmetry among investors (Bowen, Chen, & Cheng, 2008;Bradley, Clarke, Lee, & Ornthanalai, 2014;Gu & Wu, 2003), and the market reaction is positive when analysts begin coverage of a company (Demiroglu & Ryngaert, 2010;Li & You, 2015).…”