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Information Misweighting and Stock Recommendations

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Author Info
Martinez, Jose Vicente () (Swedish Institute for Financial Research)
Abstract

I provide evidence that analysts whose earnings forecast revisions showed signs of greater exaggeration in the past make recommendation changes that lead to lower abnormal returns than their peers. Interpreting stock recommendations as a forecast of future abnormal returns, I show that this evidence is consistent with the hypothesis that analysts who typically exaggerate or overstate the weight of their private information when issuing forecasts also do so when making recommendations. I also show that past earnings forecast provide incremental information about analysts' recommending behavior beyond that contained in past recommendations.

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Publisher Info
Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 59.

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Length: 48 pages
Date of creation: 15 Jul 2007
Date of revision:
Handle: RePEc:hhs:sifrwp:0059

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Related research
Keywords: Information misweighting; stock recommendations; earnings forecasts; financial analysts;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  8. Mikhail, Michael B. & Walther, Beverly R. & Willis, Richard H., 2004. "Do security analysts exhibit persistent differences in stock picking ability?," Journal of Financial Economics, Elsevier, vol. 74(1), pages 67-91, October. [Downloadable!] (restricted)
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  11. Loh, Roger K. & Mian, G. Mujtaba, 2006. "Do accurate earnings forecasts facilitate superior investment recommendations?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 455-483, May. [Downloadable!] (restricted)
  12. Zitzewitz, Eric, 2001. "Measuring Herding and Exaggeration by Equity Analysts and Other Opinion Sellers," Research Papers 1802, Stanford University, Graduate School of Business. [Downloadable!]
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