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Valuing Intel: A Strange Tale of Analysts and Announcements

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Author Info
Bradford Cornell (Anderson School of Management)
Abstract

This paper examines the market reaction to a press release issued by Intel on Thursday, September 21, 2000. In response to that release, Intel's stock price dropped 30 percent, erasing over $120 billion of shareholder wealth. By analyzing the press release in conjunction with analyst reports and by using a discounted cash flow valuation model, it is argued that the information conveyed by the announcement was not sufficient to explain the stock price drop. In an effort to explain this controversial conclusion, the paper documents the puzzling and procyclical role of analysts' recommendations regarding Intel. Surprisingly, analysts were more strongly recommending purchase of the stock in August at $75 than they were recommending purchase in September at $40. This suggests a positive feedback between stock price movements and analyst recommendations that may increase the volatility of prices.

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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1077.

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Date of creation: 01 Nov 2000
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Handle: RePEc:cdl:anderf:1077

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  1. Zarowin, Paul, 1989. " Does the Stock Market Overreact to Corporate Earnings Information?," Journal of Finance, American Finance Association, vol. 44(5), pages 1385-99, December. [Downloadable!] (restricted)
  2. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July. [Downloadable!] (restricted)
  3. O'brien, Patricia C., 1988. "Analysts' forecasts as earnings expectations," Journal of Accounting and Economics, Elsevier, vol. 10(1), pages 53-83, January. [Downloadable!] (restricted)
  4. Kaplan, Steven N & Ruback, Richard S, 1995. " The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 50(4), pages 1059-93, September. [Downloadable!] (restricted)
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  5. Brown, Lawrence D & Rozeff, Michael S, 1978. "The Superiority of Analyst Forecasts as Measures of Expectations: Evidence from Earnings," Journal of Finance, American Finance Association, vol. 33(1), pages 1-16, March. [Downloadable!] (restricted)
  6. De Bondt, Werner F M & Thaler, Richard H, 1990. "Do Security Analysts Overreact?," American Economic Review, American Economic Association, vol. 80(2), pages 52-57, May. [Downloadable!] (restricted)
  7. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118. [Downloadable!] (restricted)
  8. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July. [Downloadable!] (restricted)
  9. Chopra, Navin & Lakonishok, Josef & Ritter, Jay R., 1992. "Measuring abnormal performance : Do stocks overreact?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 235-268, April. [Downloadable!] (restricted)
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