Delayed Price Reactions to Analysts’ Recommendation Revisions

Quantitative Finance, Forthcoming

26 Pages Posted: 23 Nov 2013 Last revised: 3 Dec 2016

See all articles by Kotaro Miwa

Kotaro Miwa

Kyushu University - Faculty of Economics

Kazuhiro Ueda

University of Tokyo

Date Written: October 27, 2012

Abstract

This study explores the reasons for the slow price reactions to analysts’ recommendation revisions. We predict that analysts’ recommendation revisions contain earnings-related information that is not incorporated in analysts’ earnings forecasts and that the slow price reaction is attributable to a gradual incorporation of this earnings-related information into stock prices. We find that, consistent with our prediction, stocks with recommendation upgrades subsequently experience more upward earnings forecast revisions than stocks with recommendation downgrades, and that the differences in subsequent stock returns between upgraded and downgraded stocks is attributable to differences between subsequent earnings forecast (especially, FY2 earnings forecast) revisions.

Keywords: security analysts; stock recommendations; earnings forecasts

Suggested Citation

Miwa, Kotaro and Ueda, Kazuhiro, Delayed Price Reactions to Analysts’ Recommendation Revisions (October 27, 2012). Quantitative Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2358269 or http://dx.doi.org/10.2139/ssrn.2358269

Kotaro Miwa (Contact Author)

Kyushu University - Faculty of Economics ( email )

6-19-1, Hakozaki
Higashi-ku
Fukuoka, Fukuoka 8128581
Japan

Kazuhiro Ueda

University of Tokyo

Yayoi 1-1-1
Bunkyo-ku
Tokyo, Tokyo 113-8657
Japan

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