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Hedge fund activism and analyst uncertainty

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  • Flugum, Ryan
  • Howe, John S.

Abstract

Using a sample of hedge fund activist events from 2001 to 2014, we assess analysts’ reaction to hedge fund activism by considering changes in their recommendations and their earnings forecast accuracy. Following the arrival of a hedge fund activist, a preponderance of recommendations move to or are reinstated at the Hold level, the accuracy of analyst earnings forecasts decreases, and there is a decline in analyst forecast activity. Overall, our findings suggest hedge fund activism increases analyst uncertainty, limiting their ability to add value in this setting.

Suggested Citation

  • Flugum, Ryan & Howe, John S., 2020. "Hedge fund activism and analyst uncertainty," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 206-227.
    • Handle: RePEc:eee:reveco:v:66:y:2020:i:c:p:206-227
    DOI: 10.1016/j.iref.2019.11.022
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    Cited by:

    1. Oehler, Andreas & Schmitz, Jonas Tobias, 2021. "Does intensified communication of hedge funds with letters affect abnormal returns?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 127-142.

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    More about this item

    Keywords

    Hedge fund activism; Analyst recommendations; Analyst forecasts;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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