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Do financial analysts’ opinions matter?
Conference proceeding   Peer reviewed

Do financial analysts’ opinions matter?

Yi Liu, Tomas Mantecon and Samuel H Szewczyk
International Journal of Banking, Accounting and Finance, v 3(2-3)
01 Jan 2011
DOI: https://doi.org/10.1504/IJBAAF.2011.041451

Abstract

Accounting and Finance ECONOMICS AND FINANCE JOURNALS
Using all available 385,342 initiations, upgrades, and downgrades of equity analysts’ recommendations between 1980 and 2008 from First Call, we explore both the short-term and long-term market reactions following those announcements. We found significant positive/negative announcement abnormal returns following upgrades/downgrades. However, we only found significant drift following downgrades. We found that initiations with neutral rating were also followed by significant negative abnormal returns, suggesting that investors adjust for the positive rating bias in initiations. We also found significant drift for initiations with sell or strong sell. Investors still underestimate the negative information contained in initiation with bad ratings. Overall, our evidences support the argument that analysts’ recommendations have investment values, but suggest the market under-reacts to negative rating initiations or downgrades.

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