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- Title
THE CORRELATION BETWEEN STOCK RETURNS BEFORE AND AFTER ANALYST RECOMMENDATION REVISIONS.
- Authors
Kudryavtsev, Andrey
- Abstract
In this study I analyse the correlation between stock returns before and after analyst recommendation revisions. I hypothesise that if a recommendation revision for a given stock takes place after a short period when the stock's price moves in the opposite direction, it may indicate that the fundamentals that caused the analyst to revise their recommendation are less completely (if at all) incorporated in the stock price, significantly increasing the probability of subsequent post-event price drift. Analysing a large sample of recommendation revisions, I document that both recommendation upgrades and downgrades are followed by significant one-tosix-month price drifts (reversals) if they are preceded by the opposite-sign (same-sign) short-term cumulative abnormal returns. The effect remains significant after accounting for additional relevant companyspecific (size, Market Model beta, historical volatility) and event-specific (stock's return and trading volume on the event day, brokerage firm size, analyst experience, recommendation category before the revision, number of categories changed in the revision) factors.
- Subjects
STOCKBROKERS; STOCK prices; ABNORMAL returns; BUSINESS size
- Publication
Economic Annals / Ekonomski Anali, 2021, Vol 66, Issue 228, p69
- ISSN
0013-3264
- Publication type
Article
- DOI
10.2298/EKA2128069K