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The Impact of Publication of Analysts' Recommendations on Returns and Trading Volume

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  • Palmon, Oded
  • Sun, Huey-Lian
  • Tang, Alex P

Abstract

Publication of security analysts' recommendations in the column "Inside Wall Street," which is published in "Business Week," induces abnormal returns on the publication day and the following day. The abnormal returns are robust to the use of alternative samples and methodologies. The publication increases trading volumes for the securities that are recommended to be purchased, but not for securities that are recommended to be sold. The abnormal returns and trading volumes support the view that stock prices do not adjust instantaneously when new information arrives, and that the time pattern of price adjustment depends on the time pattern of the accessibility of the information. The authors find no statistically significant difference between the average abnormal returns that are induced by recommendations that appear at the beginnings of "Inside Wall Street" columns (and are covered more extensively than others) and the average abnormal returns induced by other recommendations. Copyright 1994 by MIT Press.

Suggested Citation

  • 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, vol. 29(3), pages 395-417, August.
    • Handle: RePEc:bla:finrev:v:29:y:1994:i:3:p:395-417
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    Citations

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    Cited by:

    1. Ferreira, Eurico J. & Smith, Stanley D., 1999. "Stock price reactions to recommendations in the Wall Street Journal "Small Stock Focus" column," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(3), pages 379-389.
    2. Wei Hao & Udomsak Wongchoti & Martin Young & Jianguo Chen, 2021. "R2 and the corporate signaling effect," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1353-1381, December.
    3. Devos, Erik & Hao, Wei & Prevost, Andrew K. & Wongchoti, Udomsak, 2015. "Stock return synchronicity and the market response to analyst recommendation revisions," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 376-389.
    4. Darko B. Vukovic & Vladislav Ugolnikov & Moinak Maiti, 2021. "Sell‐side analysts' recommendations a value or noise," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 3134-3151, April.
    5. Enrico Maria Cervellati & Riccardo Ferretti & Pierpaolo Pattitoni, 2014. "Market reaction to second-hand news: inside the attention-grabbing hypothesis," Applied Economics, Taylor & Francis Journals, vol. 46(10), pages 1108-1121, April.
    6. Pham, Linh & Hao, Wei & Truong, Ha & Trinh, Hai Hong, 2023. "The impact of climate policy on U.S. environmentally friendly firms: A firm-level examination of stock return, volatility, volume, and connectedness," Energy Economics, Elsevier, vol. 119(C).
    7. Zhang, Yongjie & Song, Weixin & Shen, Dehua & Zhang, Wei, 2016. "Market reaction to internet news: Information diffusion and price pressure," Economic Modelling, Elsevier, vol. 56(C), pages 43-49.
    8. Sant, Rajiv & Zaman, Mir A., 1996. "Market reaction to Business Week 'Inside Wall Street' column: A self-fulfilling prophecy," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 617-643, May.
    9. Zhang, Yuzhao & Liu, Haifei, 2021. "Stock market reactions to social media: Evidence from WeChat recommendations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 562(C).
    10. John A. Helmuth & Ashok J. Robin, 1998. "Trading volume and firm‐specific announcements: Implications for the market model," Review of Financial Economics, John Wiley & Sons, vol. 7(2), pages 183-195.
    11. Sanjeev Dewan & Haim Mendelson, 1998. "Information Technology and Time-Based Competition in Financial Markets," Management Science, INFORMS, vol. 44(5), pages 595-609, May.
    12. Dror Parnes, 2010. "The information content of analysts reports and bankruptcy risk measures," Applied Financial Economics, Taylor & Francis Journals, vol. 20(19), pages 1499-1513.
    13. Lidén, Erik R., 2003. "Swedish Stock Recommendations: Information Content or Price Pressure?," Working Papers in Economics 98, University of Gothenburg, Department of Economics, revised 19 Nov 2004.
    14. Erik R. Lidén, 2007. "Swedish Stock Recommendations: Information Content or Price Pressure?," Multinational Finance Journal, Multinational Finance Journal, vol. 11(3-4), pages 253-285, September.
    15. Enrico Maria Cervellati & Riccardo Ferretti & Pierpaolo Pattitoni, 2011. "Market Reaction to Second-Hand News: Attention Grabbing or Information Dissemination," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0024, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".

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