International Evidence on Analyst Stock Recommendations, Valuations, and Returns

Barniv, Ran; Hope, Ole‐Kristian; Myring, Mark; Thomas, Wayne B.

doi:10.2139/ssrn.1350616

Cited by 5 publications

(3 citation statements)

References 105 publications

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“…We caution regulators to constrain the interplay between analysts and management as the former can introduce bias into their research to please the latter, increasing the degree of inefficiency of the capital market. Furthermore, such a regulatory action should result in more profound implications in countries with less investor protection, weaker institutional quality, weaker enforcement of disclosure standards and more individual investor participation because the adverse consequence of analysts' distorted incentive is likely to be amplified in these institutions (Hope, 2003;Barniv et al, 2010;Bradshaw et al, 2014;and Qi et al, 2014).…”

Section: Resultsmentioning

confidence: 99%

“…We suggest that regulators should enforce reforms that effectively constrain the interplay between analysts and the management. Further, evidence is accumulating that analysts' optimistic bias becomes more pronounced in countries with less investor protection, weaker institutional quality, weaker enforcement of disclosure standards and more individual investor participation in the capital market (Hope, 2003;Barniv et al, 2010;Bradshaw et al, 2014;and Qi et al, 2014). Therefore, our suggested regulatory actions can have more profound implications in these countries because the adverse consequence of analysts' distorted incentive is likely to be amplified.…”

Section: Introductionmentioning

confidence: 93%

“…Therefore, analysts' incentive to please the management appears to create biases in their output. These biases have been shown to exist in non-US countries as well, and to vary with institutional quality (Basu et al, 1998;Hope, 2003;Barniv et al, 2010;Bradshaw et al, 2014;and Qi et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

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The Impact of NASD Rule 2711 and NYSE Rule 472 on Analyst Behavior: The Strategic Timing of Recommendations Issued on Weekends

Dong¹,

2016

Business Fin & Account

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Amendments to NASD Rule 2711 and NYSE Rule 472, enacted in May 2002, mandate that sell‐side analysts disclose the distribution of their security recommendations by buy, hold and sell category. This regulation enhances the transparency of analysts’ information and mitigates the long‐recognized optimistic bias in their recommendations. However, we find that analysts are more likely to issue sell recommendations or downgrade revisions on weekends when investors have limited attention after these rule changes. This pattern is more pronounced for prestigious analysts, who are more likely to influence stock prices. Market reaction tests reveal an incomplete immediate response and a greater drift to unfavorable recommendations issued on weekends. Finally, analysts who are more likely to release unfavorable recommendations on weekends exhibit higher future forecast accuracy. Our findings suggest that, while these regulatory changes effectively reduce analysts’ optimistic bias, they are also associated with an increased prevalence of a different form of distortion in the capital market.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 93%

See 1 more Smart Citation

The Impact of NASD Rule 2711 and NYSE Rule 472 on Analyst Behavior: The Strategic Timing of Recommendations Issued on Weekends

Dong¹,

2016

Business Fin & Account

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The Use of Earnings Forecasts in Stock Recommendations: Are Accurate Analysts More Consistent?

Simon

Curtis

2011

Business Fin & Account

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We examine how analysts' conflicting incentives to be either accurate or optimistic affect their choice to generate stock recommendations with rigorous valuation models or growth-based heuristics. Consistent with prior research the average analyst recommendation is negatively associated with rigorous valuation models and positively associated with growthbased heuristics, we document that these associations are weakest for the most accurate analysts and strongest for the least accurate analysts. We also find evidence consistent with consistency between recommendations and valuation models underlying the positive future returns from trading on the most accurate analysts' recommendations. Our results are consistent with reputation incentives to be accurate mitigating the use of optimistic growth-based models in generating stock recommendations.

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Analysts’ Choice of Peer Companies

2012

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International Evidence on Analyst Stock Recommendations, Valuations, and Returns

Cited by 5 publications

References 105 publications

The Impact of NASD Rule 2711 and NYSE Rule 472 on Analyst Behavior: The Strategic Timing of Recommendations Issued on Weekends

The Impact of NASD Rule 2711 and NYSE Rule 472 on Analyst Behavior: The Strategic Timing of Recommendations Issued on Weekends

The Use of Earnings Forecasts in Stock Recommendations: Are Accurate Analysts More Consistent?

Analysts’ Choice of Peer Companies

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