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Published stock recommendations as investor sentiment in the near-term stock market

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  • Nico Singer

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  • Saskia Laser
  • Frank Dreher
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    Abstract

    This paper investigates the role of published stock recommendations in print and online media as investor sentiment in the near-term German stock market. In line with extant literature on other sentiment measures, vector autoregressions reveal that past stock returns drive today’s sentiment, but not the other way around, and that sentiment is a powerful predictor of itself. In particular, sentiment based on printed analyst recommendations follows reversals, that is, when analysts face a stock market downturn, they see a buying opportunity and become optimistic. Copyright Springer-Verlag Berlin Heidelberg 2013

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    File URL: http://hdl.handle.net/10.1007/s00181-012-0649-2
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    Bibliographic Info

    Article provided by Springer in its journal Empirical Economics.

    Volume (Year): 45 (2013)
    Issue (Month): 3 (December)
    Pages: 1233-1249

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    Handle: RePEc:spr:empeco:v:45:y:2013:i:3:p:1233-1249

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    Related research

    Keywords: Analyst forecasts; Investor sentiment; Media content; VAR analysis; G17; C22;

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    References

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    1. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, American Finance Association, vol. 62(3), pages 1139-1168, 06.
    2. Brad Barber, 2001. "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 56(2), pages 531-563, 04.
    3. Schmeling, Maik, 2006. "Institutional and Individual Sentiment: Smart Money and Noise Trader Risk," Hannover Economic Papers (HEP) dp-337, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
    5. Kling, Gerhard & Gao, Lei, 2008. "Chinese institutional investors' sentiment," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 18(4), pages 374-387, October.
    6. Brown, Gregory W. & Cliff, Michael T., 2004. "Investor sentiment and the near-term stock market," Journal of Empirical Finance, Elsevier, Elsevier, vol. 11(1), pages 1-27, January.
    7. Finter, Philipp & Niessen-Ruenzi, Alexandra & Ruenzi, Stefan, 2010. "The impact of investor sentiment on the German stock market," CFR Working Papers 10-03, University of Cologne, Centre for Financial Research (CFR).
    8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
    9. Wang, Yaw-Huei & Keswani, Aneel & Taylor, Stephen J., 2006. "The relationships between sentiment, returns and volatility," International Journal of Forecasting, Elsevier, Elsevier, vol. 22(1), pages 109-123.
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