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Trend information and cross-sectional returns: The role of analysts

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  • Ma, Yao
  • Yang, Baochen
  • Li, Jinyong
  • Shen, Yue

Abstract

This study investigates the role of analysts on the relationship between trend information and cross-sectional returns. Our results show that the trend information about past price and trading volume significantly predicts future stock returns in the Chinese stock market. The trend effect is more pronounced among stocks without analyst coverage or low analyst coverage, which indicates that analysts play an important role in disseminating information and helping information to be incorporated into stock price more quickly, thus reducing mispricing and weakening the trend effect. Considering the information's updates from analysts, the findings suggest that the trend effect is stronger for stocks with no revision, while the trend effect becomes weaker or even disappears for stocks with upgrade or downgrade revision. Moreover, our results show that analyst recommendations fail to take full advantage of trend information or even contradict trend signals although analyst recommendations do contain forecast information related to future stock returns. Furthermore, we find that analyst recommendations provide additional useful information that can enhance the predictability of trend information, but the value of information reflected in their recommendations cannot offset the value of trend information.

Suggested Citation

  • Ma, Yao & Yang, Baochen & Li, Jinyong & Shen, Yue, 2023. "Trend information and cross-sectional returns: The role of analysts," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x23001452
    DOI: 10.1016/j.pacfin.2023.102079
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    More about this item

    Keywords

    Trend information; Past price; Trading volume; Analyst coverage; Analyst recommendations;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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