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Swedish Stock Recommendations: Information Content or Price Pressure?

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  • Lidén, Erik R.

    ()
    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

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    Abstract

    The paper analyzes stock-price reactions to stock recommendations published in printed Swedish media and also trading volumes at and around the publication day, bid/ask spreads, and the post-publication drift in recommended stocks for the period 1995-2000. Its small size and limited number of actors makes the Swedish stock market an interesting comparison to the U.S. stock markets. The positive publication-day effect for buy recommendations was almost fully reversed after 20 days, supporting the price-pressure hypothesis, and the effect for sell recommendations was negative and prices continued to drift down, supporting the information hypothesis. Analysts seem to hand their information to clients before publication, whereas no such information-leaking pattern was observed for journalists. The impact to recommendations from journalists was significantly larger than analyst recommendations, implying a tradeoff between the size of pre-publication cumulative abnormal returns and the publication-day effect.

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    File URL: http://hdl.handle.net/2077/2751
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    Bibliographic Info

    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 98.

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    Length: 28 pages
    Date of creation: 11 May 2003
    Date of revision: 19 Sep 2003
    Handle: RePEc:hhs:gunwpe:0098

    Contact details of provider:
    Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
    Web page: http://www.handels.gu.se/econ/
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    Keywords: Price-pressure hypothesis; Information hypothesis; Journalists; Analysts;

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    1. Palmon, Oded & Sun, Huey-Lian & Tang, Alex P, 1994. "The Impact of Publication of Analysts' Recommendations on Returns and Trading Volume," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 29(3), pages 395-417, August.
    2. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, Elsevier, vol. 8(3), pages 205-258, September.
    3. Ajinkya, Bipin B. & Jain, Prem C., 1989. "The behavior of daily stock market trading volume," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 11(4), pages 331-359, November.
    4. Lloyd-Davies, Peter & Canes, Michael, 1978. "Stock Prices and the Publication of Second-Hand Information," The Journal of Business, University of Chicago Press, vol. 51(1), pages 43-56, January.
    5. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 27(01), pages 39-53, March.
    6. Liu, Pu & Smith, Stanley D. & Syed, Azmat A., 1990. "Stock Price Reactions to The Wall Street Journal's Securities Recommendations," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 25(03), pages 399-410, September.
    7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    8. Barber, Brad M. & Loeffler, Douglas, 1993. "The “Dartboard” Column: Second-Hand Information and Price Pressure," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 273-284, June.
    9. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 22(01), pages 109-126, March.
    10. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, Elsevier, vol. 14(1), pages 3-31, March.
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