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Author Info
Paul Asquith
Michael B. Mikhail
Andrea S. Au
Abstract

This paper investigates the market reaction to the information released in security analyst reports. It shows that the market reacts significantly and positively to changes in recommendation levels, earnings forecasts, and price targets. While changes in price targets and earnings forecasts both provide information to the market, revisions in price targets have a larger and more significant impact than comparable revisions in earnings forecasts. The text of the report is also a significant source of information as it provides the justifications supporting an analyst's summary opinion. When all of this information is considered simultaneously, some of it, notably the earnings forecasts, is subsumed. The results further show that analysts correctly predict price targets slightly over 50% of the time. Finally, the valuation methodology used does not seem to be correlated with either the market's reaction or the analyst's accuracy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9246.

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Date of creation: Oct 2002
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Handle: RePEc:nbr:nberwo:9246

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  1. Michaely, Roni & Womack, Kent L, 1999. "Conflict of Interest and the Credibility of Underwriter Analyst Recommendations," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(4), pages 653-86.
  2. Beneish, Messod D, 1991. "Stock Prices and the Dissemination of Analysts' Recommendations," Journal of Business, University of Chicago Press, vol. 64(3), pages 393-416, July. [Downloadable!] (restricted)
  3. 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, vol. 25(03), pages 399-410, September. [Downloadable!]
  4. Elton, Edwin J & Gruber, Martin J & Grossman, Seth, 1986. " Discrete Expectational Data and Portfolio Performance," Journal of Finance, American Finance Association, vol. 41(3), pages 699-713, July. [Downloadable!] (restricted)
  5. Bjerring, James H & Lakonishok, Josef & Vermaelen, Theo, 1983. " Stock Prices and Financial Analysts' Recommendations," Journal of Finance, American Finance Association, vol. 38(1), pages 187-204, March. [Downloadable!] (restricted)
  6. Womack, Kent L, 1996. " Do Brokerage Analysts' Recommendations Have Investment Value?," Journal of Finance, American Finance Association, vol. 51(1), pages 137-67, March. [Downloadable!] (restricted)
  7. Lloyd-Davies, Peter & Canes, Michael, 1978. "Stock Prices and the Publication of Second-Hand Information," Journal of Business, University of Chicago Press, vol. 51(1), pages 43-56, January. [Downloadable!] (restricted)
  8. Stickel, Scott E, 1992. " Reputation and Performance among Security Analysts," Journal of Finance, American Finance Association, vol. 47(5), pages 1811-36, December. [Downloadable!] (restricted)
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