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Information misweighting and the cross-section of stock recommendations

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  • Martinez, Jose Vicente

Abstract

This paper provides evidence that analysts whose earnings forecast revisions showed signs of greater exaggeration in the past make recommendation changes that lead to lower abnormal returns than their peers. Interpreting stock recommendations as a forecast of future abnormal returns, I show that this evidence is consistent with the hypothesis that analysts who typically exaggerate or overstate the weight of their private information when issuing forecasts also do so when making recommendations. The paper also shows that past earnings forecasts provide incremental information about analysts' recommending behavior beyond that contained in past recommendations.

Suggested Citation

  • Martinez, Jose Vicente, 2011. "Information misweighting and the cross-section of stock recommendations," Journal of Financial Markets, Elsevier, vol. 14(4), pages 515-539, November.
    • Handle: RePEc:eee:finmar:v:14:y:2011:i:4:p:515-539
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    3. Park, Na Young, 2020. "Trust and trusting behavior in financial institutions: Evidence from South Korea," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 408-419.

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