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Market reaction to optimistic bias in the recommendations of chaebol-affiliated analysts

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  • Lim, Youngdeok
  • Kim, Hyungtae

Abstract

Using the setting of chaebol industrial organizations in Korea, which allows for the study of a unique affiliation between a chaebol group and financial analysts, we examine whether investors react to an optimistic bias in affiliated analysts’ recommendations. Our initial market return tests, abnormal trading volume tests and independent analysts’ reaction tests suggest that investors and independent analysts recognize and discount an optimistic bias in chaebol-affiliated ‘buy’ recommendations. However, long-term market returns are more profitable in terms of affiliated analysts’ ‘buy’ recommendations than independent analysts’ recommendations, which suggests that investors excessively discount chaebol-affiliated ‘buy’ recommendations in the short-term.

Suggested Citation

  • Lim, Youngdeok & Kim, Hyungtae, 2019. "Market reaction to optimistic bias in the recommendations of chaebol-affiliated analysts," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(2), pages 224-242.
    • Handle: RePEc:eee:jocaae:v:15:y:2019:i:2:p:224-242
    DOI: 10.1016/j.jcae.2019.100156
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    Cited by:

    1. Chune Young Chung & Euisup Lee & Chang-Gyun Park, 2020. "Do Ownership Ties Increase the Optimistic Bias of Analysts’ Earnings Estimates? Evidence from Corporate Financing in the Korean Market," Sustainability, MDPI, vol. 12(11), pages 1-20, June.

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    More about this item

    Keywords

    Chaebol-affiliated analysts; Independent analysts; Stock recommendations; Market reaction;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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