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Aggregate uncertainty, information acquisition, and analyst stock recommendations

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  • Amanjot Singh
  • Harminder Singh
  • Venura Welagedara

Abstract

We examine the informativeness of analyst stock recommendations in the presence of aggregate uncertainty. Our results suggest that a one standard deviation increase in aggregate uncertainty decreases the likelihood of influential recommendation revisions by 5.26%. Increased aggregate uncertainty leads to a small stock price impact for upgrade and downgrade recommendations. Our findings reveal consistent search for information by investors, which, support a post‐recommendation price drift amidst high aggregate uncertainty. We further find that investors of firms with fewer distracted shareholders, less readable financial statements, and more informed trading seek more information when aggregate uncertainty is high. Our study highlights that investors become more cautious while responding to analysts' stock recommendations during high aggregate uncertainty.

Suggested Citation

  • Amanjot Singh & Harminder Singh & Venura Welagedara, 2024. "Aggregate uncertainty, information acquisition, and analyst stock recommendations," International Review of Finance, International Review of Finance Ltd., vol. 24(4), pages 604-640, December.
    • Handle: RePEc:bla:irvfin:v:24:y:2024:i:4:p:604-640
    DOI: 10.1111/irfi.12455
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